My DS is named after DH's grandfather. One of DH's cousin's has mentioned that they were planning on using it as a middle name if they were to have another boy, which is just fine since we would most likely use their girl middle name if we had another daughter because it is a family name too.

I would hesitate if your nephew had it as a first name, but since it is his middle name I think it would be fine to use it and it is another family link for them to share.