Is there a proper way to rededicate a flag after funeral services are rendered?

Rallypoint,

My grandfather, Fc2 Clyde Jacob Yuhas (US Navy; USS Butte APA-68) of Helena, MT passed away in 1969. Last year (2017), I had recovered his flag from my Aunt. I am the only immediate family member that has served in the US military so it made sense that I began to recover his records and other personal objects that relate to his history of military service. Unfortunately, when I received his flag, I discovered that it was not folded correctly. There is red showing.

I'm unsure of why it was unfolded and refolded but it is wrong and it's quite an eye sore. He served during WW2, I confirmed this with a muster roll document received from my extended family of the USS Butte during 1939 and 1940. While he is not highly decorated, he is in-fact a wartime veteran. There was also talk that he was involved with the Korean war but I am unable to confirm this with proof.

We have a HUGE family reunion coming up in Montana this summer. I want to ensure I follow tradition 100% and to not disrespect my Grandfather's life, service or grave by holding a formal ceremony to correct his flag over his grave in Helena, MT; along with a rededication of his own flag to him. However, (if this ceremony is ethically and morally acceptable) I want to follow US Flag code and certainly US Navy regulation when it comes to something like this. The plan is to reach out to the VFW and Legion Posts in the Helena area to help with this ceremony. As well as anyone who served alongside with Clyde to be present if they are alive. There is belief that he was drafted, so we think other people that may have known him may be in the Helena area, but I am unable to confirm this as well.

If this ceremony is prohibited, or certain traditions need to remain a certain way or modified; myself and the rest of the Yuhas & Freeman family would appreciate to know. I served with Massachusetts Honor Guard Region 3 a couple of summers ago and understand the importance and respect when it comes to honor guard detail. I just can't seem to find regulation and proper SOP when it comes to rededicating someone's flag.

To futher clarify- there were two USS Buttes launched in the Navy, both now decommissioned: https://en.wikipedia.org/wiki/USS_Butte

Here is the document showing his name on an old muster roll (if you are a Fold3 member): https://www.fold3.com/document/303278196

Thank you all. Again, I am speaking on behalf of my family in regards to his flag as we are planning our reunion right now.

~ SGT Yuhas