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I'm with those saying file a police report. If any other incidents happen with this idiot neighbor of yours you now have something on file that the cops can go on.
Instead of thinking about shooting him with the gun, once you realized his weapon wasn't the threat you thought it was, you should have shot him with your camera. Pics of him pointing a weapon at your family member, loaded or otherwise, is pretty strong evidence.
Of course I'm going on the assumption that your story isn't all made up. :D
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