how do i merge my current i cloud with my wife's new 2 TB icloud?

See the instructions in Share iCloud+ with your family - Apple Support including the following:

If a family member is already paying for their own iCloud+ plan, they can choose to switch to your plan or keep their own and still remain part of the family. When they switch to the shared family plan, they get a refund for the remainder of their personal plan. They can't keep their current plan and use the shared family plan at the same time.

Hi

You can use two different accounts and can log in for different uses like one for itunes,contacts etc

and the second answer is no your subscription will not be cancelled.