What is the best method of effecting a transfer of guardianship?

You understand that you and your wife are the natural guardians of your son and so I do not really understand what guardianship paperwork other than transferring it to your nephew now.  I think what you are trying to do is to plan for the future.  This is not the forum for that kind of planning.  It is too important a decision to give any guidance like this.  What generally happens is that the Will names the guardian of the child after the matter has been discussed with the potential guardian.  But there is so much more to plan like a trust for the child's benefit, etc.  Please seek legal help.  Good luck.