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Dear LW,
While reading your letter, I had a couple of thoughts. I notice that you say that although you and your sister suffered abuse from your mother, you cannot blame her because she is mentally ill. While I agree that she is not sane enough to be culpable for her actions, I do think it's important that you allow yourself to grieve for the pain you experienced and the losses you suffered, including the loss of the mother you knew or at least the mother you hoped for.
I also sensed that you might feel some guilt about completely cutting off contact with your mother. While it's understandable - we cannot allow our lives to be derailed by someone else's mayhem - perhaps you could find a balance that would allow you some contact with your mother but also protect you at the same time. Since your mother lives out of state, perhaps you might occassionaly communicate with her by letter.
Finally, I really feel for any family who has gone through the experience that yours has. I can't recall what type of setting your mother is living in, but have you considered a residential treatment home? I had a cousin who was a paranoid schizophrenic, and after she tried to stab her mother, she was put into a residential treatment facility. She actually did much better there, because she was medicated, and also because she responded well to structure. Her mom and siblings visited her regularly, and were even able to bring her home for short family visits because she was medicated. I actually think she lived a happier life in the facility than she would have outside of it. Depending on the severity of your mother's illness, this may be something you want to consider.
Best wishes to you and your family.