I know it's unlikely, but what if the estate tax did go away forever and the folks in Washington were permanently forbidden from even contemplating reintroducing it.  Yes, I am completely delusional today, but it's Friday, and we all worked hard this week, so play along for a few minutes.

The first thought for anyone who has been active in the estate planning field is probably what the heck do I do when I show up for work tomorrow?  It is more than a little scary, and drives home the point of the rest of today's discussion - the feds are wagging the dog when it comes to estate planning, and even the use of life insurance in financial planning.

Think about it.  Even as we talk about all the creative ways to use life insurance to solve the problems our clients have, when it comes right down to it, most of the large permanent insurance sales out there are based on one thing - replacing a bunch of cash that Uncle Sam takes out of our pockets if we have the good fortune to accumulate a good pile of the green stuff.  Take that fear away, and the life insurance industry changes dramatically.  That would be unfortunate for a bunch of us to say the least, but it points out that we have been off target in our discussions with our clients regarding insurance and the proper way to use it.

Before we continue, let's get one thing straight - nothing has changed about replacing the economic value of human life.  We are right on point on that one, if not under-serving our clients if recent statistics are to be believed.  What I am talking about is viewing life insurance only as an expense that needs to be paid to offset a loss.  What if it was the other way around?  What if insurance was viewed as an integral aspect of a financial plan, but not for income protection?  What criteria would carriers use for financial underwriting?  How would we determine the recommended amount of insurance?   

The truth of the matter is that no one really knows.  In this scenario it's not income replacement, business insurance, estate tax mitigation or any of the other traditional metrics we use.  It's the idea that owning this insurance is a great way to insert a non-correlated asset into a portfolio, and we think that this amount is right because of the reduction in standard deviation we are able to achieve as a result.  Try explaining that to an underwriter?  Most of us don't get it, and they won't either.  Doesn't mean it's not valid, just new and different.

To this point, it has been a nice theoretical discussion, but when you compare it with the current methodology at the carrier (We think that the estate tax laws will be exactly the same 25 years from now at your life expectancy as they were in the year 2000.  For that reason we will only offer 50% of projected estate growth at a rate of 6% and a time period of no more than 15 years?!) and maybe, just maybe, you start to agree with me that it is time to take another look at this.  I am confident there is a better way, and it has the nice benefit of taking away that little objection that has plagued us ever since the first estate tax reform - I don't think there will be an estate tax.  My response?  "Great, it is completely irrelevant to this conversation!  Here's why."

I need to go for today, but we will touch on this topic again in the coming weeks.