You have to add and set the relationship type to every family member under the relationships tab of the Sim Description and you have to do it again for 'immeadiate' family - mum, dad, siblings in the Family Ties panel. The Sim Description/Relationships panel sets the family bond between the Sims while the Family Ties panel builds the actual tree that you see when you click on the special icon under the relationships panel in the game.
Thanks Madame Mim, I was having issues because I'd somehow forgotten about the Family Ties panel. Fawn found herself an orphan when everyone else in her household died in a pool-meets-lightning accident on her uncle Edge's birthday. The social worker took her overnight, while Charisma the Freak moved in the house. When Charisma adopted her, her great grand aunt was suddenly mommie. (More like mommie dearest). Fixed now.