If it were my family heirloom, I would do the following:

1) Repair the barrel finish where the rear sight was removed.
2) Buy a nice old leather sling that has complimentary wear.
3) Write down its history and tuck it away in the trap door.
4) Display it and, if a gunsmith says it's ok, take it to the range every once in a while.
5) If the fondness grows, find yourself another Krag in the original configuration to keep it company.

Good luck with your project!