Isn't it bank fraud to deposit checks payable to dead person for 8 months into an account owned by my sister?
Not necessarily. Fraud generally requires a false statement with an intent to obtain from another property or some benefit he is not entitled to receive. The issues would be how she deposited the checks and what she intended to do with the money. If she used the money for expenses related to the rental properties, for example, then its hard to see that as any kind of fraud. Sure, it would have been cleaner to set up the trust bank account and put the funds in there since the properties were owned by trust. But just because they didn't follow the right form does not make it fraud.
Didn't she have an obligation to inform her bank that my father had passed and was no longer a joint tenant owner on her account.
Perhaps, or it may have been up to the estate to do that. Ask your lawyer about that. As with everything else in this long ongoing saga of yours, your lawyer is the best source of advice—he/she should know all the facts and the applicable law and can help you resolve the issues you have with these trusts.
How could the trust attorney allow this to happen?
Attorneys do not control their clients. They advise them. What the clients do after they get the advice is up to them. The lawyer may not have even known the details of what was going on. And if he did, he may have advised the client it would be better that they set up the trust bank account and the client ignored the advice. Wouldn't be the first time a client has ignored a lawyer's advice, wouldn't be the last. I've had clients who ignored my advice, too.