My dad has a couple of class 3 items.  We were talking the other night, and we were wondering what physically has to happen to the class 3 items, between the time he passes away and I get paperwork to transfer the items to me?  While my sister will be the executor, she would not be able to hold them.  Do the locals confiscate them.  Or will the feds suddenly show up the day after he's gone?

I would think this happens.  Anyone with any knowledge of how this all takes place?

I'd recommend you contact the NFA Branch directly on this but I'll take a crack at it.

Your sister, as executor, would gain temporary possession until a tax-free transfer is approved to you (make sure he has a will which names you as the beneficiary to receive the weapons).  If she can't possess the weapons for some reason (felony conviction, etc.) I'm not sure if she would have to name an agent to hold them or if she (acting as executor) would have some sort of special exemption until such time as an approved transfer to the lawful heir (you) could be executed and approved.  To be quite honest, I don't think there is any background check or investigation into the executor since their possession is only temporary.  Thus, it is possible that even if your sister is prohibited from possessing a firearm for some reason, BATF wouldn't know because there's no check on that end (as far as I know).

It would be better and easier if your dad just transferred them to me now.  ;)

But seriously, the executor is allowed to hold them while transfering them tax free to the proper heir.