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I think if you both feel that this is something you should do it could work pretty well. If you take care to watch over your neices interactions with the other kids and do your best to explain to your kids why she might not always behave well, you should be able to protect them. And kids grow up well when they have self-sacrifice and service to others modeled by their parents. It's a good thing that you're concerned ahead of time. Being aware of potential problems is a great way to proatively parent, if you expect problems and think of ways to deal with them ahead of time, they end up being a lot smaller than they might have been, or even than you expect.
One thing that should make it easier on your kids is that your oldest is the same age, thus he/she won't be displaced in birth order. The biggest problems between blended families is fiting someone into a different birth order than they were born to. Your neice might have some issues not being the baby anymore but your kids shouldn't have any extra issues because of birth order. And it may be that the extra attention of having attentive parents around will make up for suddenly being a middle child (as your oldest will always act like an oldest even if your neice is a little older).
I would definately agree with you about legally adopting her and setting whatever limits you feel best for the rest of the family, it's an important step to making her feel that you are her family. I'd also take care to explain as much of what's going on to her as possible. Uprooting a kid, even from an unstable home is slightly tramatic, simply explaining to her that you want her to have a safe, loving, and stable home and how the different rules and changes you're making are all to help her have that, can really help her feel that it's for her not something that's being done to her.
Good luck! As a parent who's really thought this out you have a better chance of making it work than some one who jumps in without any qualms.
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TCK"s or Third Culture Kids are difined as "[A] person who has spent a significant part of his or her developmental years outside the parents' culture. The third culture kid builds relationships to all of the cultures, while not having full ownership in any. Although elements from each culture are assimilated into the third culture kid's life experience, the sense of belonging is in relationship to others of the same background."
How being a TCK relates to my desire to adopt some day: I grew up an international child, and while the walls between country and race mean less to me than most, I grew up with an understanding of the influence of clashing cultures that is hard to explain to someone who exists in solely one culture. God has given me the gift of experiences to fuel my desire for international adoption and to understand an internationally adopted child's world.
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