Developing an estate plan that is satisfactory to all parties is challenging enough when family members are divided over the rights to assets. Those divisions can grow by an order of magnitude, advisors say, when family members are not related by birth but by a marriage between a biological parent and a step-parent.

“In blended families, there is a natural reluctance among members to put their arms around estate planning issues because of the potential for conflict,” says Dick Ferris, an estate planning attorney and partner at Ferris & Associates, Williamsburg, Va. “They don’t know how to get issues resolved. So they give up.”

However unpleasant the issues, the potential for acrimony–indeed, open warfare in probate court–is many times greater after the death of a spouse. That’s true, sources say, even in cases where family members seemingly enjoy amicable relations. Often, bad blood among half-siblings or between a step-parent and step-children lies hidden while both spouses are alive, only to surface when estate assets are distributed after death–to the detriment of one or several survivors.

Example: Children of a first marriage are disinherited because the deceased parent, having failed to set aside funds for their benefit, effectively leaves control of the estate to the widowed spouse of the second marriage. A common result: The surviving step-parent enjoys income on the estate while alive and, upon death, bequests the estate to his or her biological children–again leaving the children of the first marriage in the lurch.

The degree of rancor generally grows, advisors say, the closer in age the surviving spouse is to children of the first marriage. When the feuding parties are approximately the same age or, in extreme cases, when the step-parent is actually the youngest among them–witness the Anna Nicole Smith case–the children may conclude they’ll never live to inherit the deceased parent’s assets.

To be sure, it’s not always the surviving step-parent who acquires the lion’s share of the wealth. Dean Hedeker, a financial planner and president of Dean R. Hedeker Ltd., Deerfield, Ill., cites the case of a deceased business owner who passed on the family restaurant to a second wife and 3 adult sons. Because the sons collectively owned 75% of the establishment, they were able to deny the wife of cash flow on which she depended for income.

Hedeker observers that the wife’s situation could easily have been addressed had her husband implemented an estate plan and a buy-sell contract providing for an agreed price and cash, funded with life insurance, with which the sons could have purchased the wife’s 25% interest. But he cautions that when ill feelings exist between family members, having an estate plan is no guarantee of an equitable result.

“For the most part, clients follow my recommendations and understand that problems will be resolved by getting everyone together,” he says. “But you always come across these ‘I don’t believe’ situations. In one instance, the husband wanted to write a plan that would disinherit his spouse–which you can do in Illinois–and pass everything down to the kids.”

Whether the grandkids ultimately inherit the wealth is an open question. Scott Keffer, president and founder of Wealth Transfer Solutions, Pittsburgh, Pa., says divorce among adult children can also undermine efforts to keep family assets within the bloodline.

“There is at least a 50% chance that a divorce will occur among your children and grandchildren,” says Keffer. “[Clients] have to take care to protect against this as well as the other 3 predators of wealth: estate taxes, litigation and bad personal decisions.”

Family feuds over inheritance are becoming increasingly common, experts say, in large measure because of the growth of blended families. Advisors interviewed by National Underwriter estimate that these families account for between 25% and 50% of their practices. Nationwide, at least one-third of all new marriages involve divorced or widowed parents with children under 18 living in the home, according to the Stepfamily Association of America.

How can parents ensure that family assets pass on to children before entering a second marriage? One option, sources say, is for the intended newlyweds to enter into a prenuptial agreement that separates their financial assets. That will protect against claims by either spouse on the other’s assets in the event of divorce; and, at death, insure that personal assets pass to each spouse’s respective children or other intended beneficiaries.

When these agreements are concluded, other issues can arise. Often, the prenups run counter to other estate planning documents, such as wills, living trusts and life insurance policies, particularly with regard to the stated beneficiaries. Thus, when conducting fact-finders, advisors need to review these documents for potential conflicts.

This due diligence applies as well to individual retirement accounts, which advisors say are the most overlooked and, the family house notwithstanding, the largest asset in the client’s portfolio.

“I can’t tell you how many times clients have come to me to review a new will, but they’ve never changed the beneficiary designations of their IRAs,” says. “Yet, the retirement account is often the most important asset they own. That’s particularly true among high-paid execs who are putting away substantial amounts of money into 401(k)s and non-qualified deferred compensation plans.”

Adds Ferris: “The blended couple has to be made aware that a train wreck is waiting to happen if they don’t get the beneficiaries right on the IRAs and other assets.”

But getting the beneficiary designations right for certain parties can be disadvantageous for others, absent counterbalancing measures. How, for example, is the wife of a second marriage to make ends meet if, upon the death of her spouse, she has no recourse to alternative sources of income and the adult children of the husband’s first marriage inherit his accumulated wealth and property?

Enter life insurance, which advisors say is the primary vehicle for achieving estate equalization. Thus, when making the children the beneficiaries of the IRA, a parent can also establish a life insurance policy of equal value for the spouse. By placing the insurance inside an irrevocable life insurance trust, the parent can also assure that death benefits are not subject to estate tax.

Advisors say an ILIT (or wealth replacement trust) might also be leveraged in instances where the client is charitably inclined. A charitable remainder trust can be established to provide the vehicle’s grantor with a lifetime income stream, the trust’s remainder interest going to charity at time of death. The ILIT provides cash to the surviving spouse (or children) to replace family assets sold by the CRT’s trustee to fund the charitable objectives.

Should the client be unable to buy life insurance due to uninsurability or poor rating, he or she might purchase a non-qualified deferred annuity as an alternative, observes Ferris. When the client dies, the spousal beneficiary can take ownership of the annuity, maintaining the tax-deferred treatment of the cash value, or start taking income.

Often, the issue is not estate equalization or asset replacement, but how to transfer property held jointly by the spouses in an equitable and tax-efficient manner. In these instances, Ferris advocates the use of revocable living trusts, one for each spouse. Should either become disabled, the other becomes a successor trustee, placing the individual in a fiduciary capacity.

The jointly held assets are retitled as “tenants in common” and divided evenly between the 2 RLTs. Within this structure, credit-shelter and qualified terminal qualified terminal interest property (QTIP) trusts are set up. When one spouse dies, the credit shelter and QTIP trusts become irrevocable, providing the surviving spouse with income and principal for support and maintenance. When the surviving spouse dies, assets remaining in trust revert to the children.

“The QTIP lets you transfer money to children at the death of a surviving spouse free from probate administration and the claims of the surviving spouses’ creditors or ex-spouses,” says Jeffrey Levine, a financial planner and partner at Empire Asset Management, Albany, N.Y. “It’s a special marital trust that lends itself well to blended family situations.”

However well-versed the advisor may be in these and other estate planning techniques, sources say, success in arriving at a satisfactory solution for the blended family will depend on other factors. Among them: superior fact-finding and listening skills; access to a knowledgeable estate planning attorney; and fortitude in surmounting seemingly intractable positions dividing family members.

“As advisors, we have to expect and embrace the challenges [engendered by estate planning],” Keffer says. “If people could do the planning themselves, they wouldn’t need us. It’s our ability to navigate a difficult process that makes us valuable.”