I don’t see any positive coming from letting the Director know your younger daughter will not be back. The only reason to do that would be an upset parent just wanting to throw it in the face of the organization. My fear is it would negatively affect the coaches view of your daughters role on the team as you play out the remainder of the games.
I was told a good lesson by one of the coaches I coach with on my DD’s team. Never get frustrated and upset with players and families leaving the organization. He coached his older son in travel ball and said he took it personally at first when parents pulled their kids to go to another team. Only to have them ask to be back on the team a month or two later. The coaches and Director should be very well versed in this. The only thing constant about travel ball is that girls/families will change teams.
If the 12 U team is that bad and not showing signs of improvement I don’t see how anyone would ever blame you for moving on.
Why did you join the team in the first place? I assume you went to a practice or tryout. You couldn't see train wreck coming? Choose wisely parents.
Can DD#2 handle playing up a year and get on the same team as DD#1? Not sure of the sister dynamics, but that sure would make life easier on Mom and Dad.