Keep in mind that the estate tax repeal may not be permanent. Due to the sunset provisions of the current tax law, the estate tax will be reinstated in 2011, based on 2001 tax laws, unless further legislation is enacted.

Even if the estate tax repeal becomes permanent, there are situations where the use of life insurance may be an appropriate estate planning strategy:

• To provide liquidity after your death: If your estate consists primarily of illiquid assets, such as real estate or a business, you may want to use insurance to provide funds to your family so they will not have to sell or mortgage assets.

• To equalize inheritances: Perhaps your primary asset is a family business, which is run by one of your children. You may want to leave the business to that child, but need additional funds to equalize the inheritances of your other children.

• To transfer wealth to heirs: Even if the estate tax is permanently repealed, life insurance proceeds still retain their income tax advantage — proceeds are paid to beneficiaries free of federal income taxes.

• To leave a large contribution to a charity: You may want to leave a large charitable contribution to a charity without depleting assets left to heirs.

• To help heirs fund future tax liabilities: After the estate tax is repealed, inherited assets will no longer receive a step-up in basis to market value at the date of the decedent’s death. Instead, inherited property will generally have a basis equal to the lesser of the decedent’s adjusted basis or the property’s fair market value at the date of the decedent’s death, with certain adjustments. If you leave substantial assets with low bases to heirs, they may face significant future tax liabilities. You may want to help them with those tax liabilities through the use of life insurance.