(FORTUNE Magazine) – THE JOB of passing the wealth you've accumulated to the people you want to receive it, once a fairly simple procedure, has lately become a twisted fabric -- a woof of good intentions too often warped by bad planning. It's not that the rules have changed so dramatically -- people have. High rates of divorce and remarriage have made a patchwork of the American family. Nearly 20% of all youngsters today live in nontraditional family arrangements as adopted children or as stepchildren of one parent. Add to them the countless adult offspring of divorced couples with patchwork families of their own, and you're talking about a big chunk of the American population. For today's family in all its different configurations, the job of estate planning can seem like three-dimensional chess. Like most couples, you and your current spouse are probably joint owners of your home, your mutual funds, and your bank accounts. When one of you dies, those assets -- constituting perhaps the bulk of your estate -- pass automatically to the survivor. But that simple scenario ignores many of modern life's complications. For example, if you intend your share of assets to go to your children from a prior marriage, you'll need to take additional steps, like retitling the deed of your home and dividing your brokerage and bank accounts so that each of you can choose your own heirs. In a second marriage, both spouses may have grown children from prior unions, and careful estate planning is a must. In these situations, each partner will predictably champion the interests of the children they nurtured. But remember, after you're gone, the assets you leave your spouse outright are hers to do with as she sees fit. Says attorney David Belin of Des Moines, the author of an eminently readable estate planning guide called Leaving Money Wisely: "No matter what promises a previously married husband and wife may give each other to safeguard the inheritance for the other's children, all bets are off after the first of them dies." Think such complications won't affect you? Consider this: These days just over half of all married people will go through life with only one spouse. Even if you are happily married, what's to say your spouse will not seek remarriage if widowed, or that you won't? Now ask yourself: Did you labor an entire lifetime so that the wealth you've amassed could end up in the hands of the creditors of the ne'er-do-well husband of your second spouse's daughter after you're gone? If all you've got working for you is a simple will, the answer might be yes. To protect your heirs against such contingencies, you'll have to do more complicated planning than simply setting up a will. Says attorney Jeffrey Condon of Santa Monica, California, the co-author with his father, Gerald, of a new book called Beyond the Grave: "Recognizing that you have an estate planning problem is 95% of its solution." FOR EXAMPLE, if you are in a second marriage now, you'll need good legal and financial advice from professionals who can help you clearly define your intentions and, equally important, help you to untangle the emotional knots between your current spouse and the children of your previous marriages. The expert you choose, advises Martin Shenkman, an attorney and financial planner based in Teaneck, New Jersey, should be "one part lawyer, one part financial consultant, and three parts psychiatrist." To craft an estate plan for your patchwork family, begin by delicately balancing the often conflicting interests of the loved ones you want to protect. Remember: Once you're laid to rest, your money may well be the only bond connecting your current spouse to the children of your first marriage. Naturally, you want to ensure that your spouse is financially secure for the remainder of her life. But, vital soul that you are, she may not be many years older than the children of your first marriage, who could wait decades before your widow is ready to shove off for the hereafter. What, if anything, will be left for any of your children who survive her, and mightn't they have used some of the wealth you left behind to help put your grandchildren through college? The situation is a sure-fire recipe for family conflict. Says attorney Condon: "If you hate your second spouse and want to punish her, leave her in a situation where the children of your first marriage cannot get their inheritance until she dies." Trusts, not wills, are the best legal instruments for cutting the financial umbilical cord between your current spouse and the grown children from your previous marriage. Estate planning expert Frederick Raffety, an attorney with Robert Lawrenz Consulting Services in Rockford, Illinois, advises patchwork- family clients to create at least two trusts. The first, called a qualified terminable interest property trust, or QTIP, provides your spouse with the annual income for life from the principal you leave. Most QTIPs also permit her, or an independent trustee you appoint, to tap principal as needed for nursing-home care or other major expenses. When she dies, any remaining principal in the QTIP trust reverts to your children -- not to anyone else. The second, so-called residuary, trust is earmarked for your kids. When you're gone, the principal in the residuary trust can either be given outright to your children or remain in the trust, producing income that can be doled out to your named beneficiaries or be allowed to pile up for future distribution. The residuary trust may provide that the children receive regular installments of principal as they get older and, presumably, better able to manage the windfall -- perhaps one-third at age 30, another third at age 35, and the balance at age 40. Keeping the kids' funds tied up in a trust, moreover, adds the further assurance that the inheritance you leave them will remain theirs should they subsequently divorce. If, like most people, you worry that your surviving spouse may outlive the assets set aside in the QTIP trust, you can stipulate that the annual income the residuary trust produces go to her. But won't your own children have to wait until she dies before they can lay hands on their inheritance? Not necessarily. Financial planner Robert Maloney of Georgetown, Connecticut, counsels clients to empower the independent trustee to sprinkle principal to the children as they need it, say, to pay tuition, meet unexpected medical bills, or make a down payment on a home. Setting up a QTIP and a residuary trust won't eliminate all the potential frictions that can arise from familial complications after you depart. For example, your spouse may want the principal you leave to be invested conservatively to generate sufficient interest and dividend income to support her years in Croquet Gardens Retirement Villas. Your children, by contrast, will want it to be more aggressively invested to favor growth. You'll need a truly independent trustee -- perhaps the trust department of a bank -- to mediate their conflicting goals, conflicts that can arise quickly when the inheriting spouse and the inheriting children are not blood relations. One way to minimize bickering between your children and your second spouse, says attorney David Belin, is to consider cutting your spouse's children in on a fraction -- 5% or 10%, say -- of any remaining principal. Mom may be more inclined to curb her spending if she knows her kids, whom you may have come to love as your own, will get something when she's gone. What her children take of the leftovers will be a mere nibble from the banquet of booty your own children ultimately receive. How you structure your trusts should be an integral part of your strategy to keep that money-crazy family interloper Uncle Sam from getting any more than he's entitled to from your estate. The IRS does not tax anything you bequeath to your spouse, and both marriage partners are eligible to leave up to $600,000 apiece, free of federal estate taxes, to whomever they see fit. But, thereafter, steeply graduated levies rise to an expropriatory 55% for estates valued over $3 million. With careful forethought and good advice, you can defang the tax bite. Take a simple example: Suppose that husband Fred, a well-heeled codger, owns assets of $1 million, and his second wife, Ethel, has a net worth of $600,000. Each of them has two children from their previous marriages. Should Fred die first, he can leave everything he owns to Ethel tax-free. But when Ethel goes legs up, the IRS will hit up her estate, now worth $1.6 million, for a cool $408,000. If fair-minded Ethel should decide to divide everything equally among her children and Fred's, each heir will end up inheriting some $298,000 after taxes are paid. Had Fred placed $600,000 in a type of residuary trust called a credit shelter trust and left the remaining $400,000 in a QTIP trust, however, he could have provided Ethel with the lifetime income from his $1 million legacy and left both his and Ethel's children better off. A frugal widow, Ethel manages to live out her remaining years without touching principal. Upon her death, Fred's children inherit his $1 million. The kids will pay no taxes on the $600,000 Fred placed in the credit shelter trust, but they will owe the IRS some $153,000 on the $400,000 they receive as the ultimate beneficiaries of the QTIP trust, leaving them a net inheritance of $423,500 apiece. Unfair to Ethel's two children? Hardly. They will each receive $300,000, the tax-free proceeds from their mom 's $600,000 estate. Total tax savings: a juicy $255,000. Better still, what Fred and Ethel leave in their credit shelter trusts is valued at the time they die. So, if the assets in foresightful Fred's estate should increase to $2 million by the time the funds are available to his children, the kids pay no tax on the extra gain. Like many trust and estate specialists, Gary Schatsky, an attorney and financial planner in Boston and New York City, advises his clients to place assets that have significant growth potential in the credit shelter trust. More affluent patchwork patriarchs and matriarchs can lower their estate taxes and minimize tensions between a second spouse and the children of a first marriage by giving whatever they can afford to part with to their kids while they are still alive. The IRS allows anyone to make, tax-free, any number of separate gifts of up to $10,000 a year to any individual. Because your estate cannot be taxed on what it doesn't own, every dollar you give away is that much less for the feds to tax when you die. The gifts' recipients, moreover, needn't pay income tax on the largess. Best of all, the children and grandchildren get to use part of the inheritance they might otherwise have to wait decades to receive while you're still around to enjoy their pleasure at your generosity. But, cautions Sharon Rich, a financial planner in Belmont, Massachusetts, be careful what assets you give away. If you shower your progeny with that Microsoft stock you bought three splits and two stock dividends ago at $28 a share, and they sell it, they'll have to pay stiff taxes on the capital gain. Of course, even the best estate planning strategy for patchwork families is worthless unless it's actually put in place and signed off on -- the sooner the better. The last thing you want is that your estate plan -- or, more likely, the lack of one -- poison the relationships that matter most to you now, or the memory you leave your loved ones.

BOX: Do's and Don'ts for Second Marriages

-- Don't own bank and brokerage accounts, or real estate, jointly with your second spouse. The assets that your spouse inherits are hers to do with as she sees fit. If each of you wishes to ensure that the children of your prior marriages inherit your share of the assets you own, you should divide ownership of these assets between you. -- Do ensure that your surviving spouse enjoys lifetime financial security by creating a marital trust to provide annual income; it also allows her or a trustee to invade principal to meet extraordinary expenses. Stipulate that upon your spouse's death, the remaining principal be left to the children of your previous marriage. -- Don't force the children of your first marriage to wait until your second spouse dies before they inherit their share of your assets. Create a residuary trust that periodically distributes principal or income to your heirs. -- Don't pay more in estate taxes than you must. You and your spouse can each exempt up to $600,000 in assets from federal estate taxes. You should each set the maximum aside in a so-called credit shelter trust for the ultimate benefit of the children of your first marriages. -- Do take advantage of the federal gift tax exemption. You and your spouse may each give away annually assets worth up to $10,000 to as many individuals as you like. Those assets will not be included in the value of your estate when you die.