Under the current law, nearly $4 million of your estate will be consumed by federal death taxes. Permanent life insurance, purchased and owned through an irrevocable life insurance trust, can replace assets lost to the tax. As you have been cancer-free for eight years, companies should be willing to issue you coverage at standard rates. The annual cost of coverage will be about $30,000.

The insurance planning should occur within the broader context of your overall estate plan. The estate plan should include a trust to manage inherited assets and provide for your daughter’s financial well-being. Your will should include provisions naming guardians for the personal care of your daughter. In addition, you should execute a power-of-attorney and a health care proxy to protect your interests in the event of your incapacitation. Seek the counsel of a qualified attorney to assist in the proper design of your estate plan.

Joseph A. Scarpo, CEO, Private Wealth Advisors, Pittsburgh

As an estate planning attorney, I recommend that you do trust planning for your daughter, if for no other reason than to create a structure to manage your assets for your daughter’s benefit after your death. If you are going to do trust planning, incorporating life insurance in that planning can yield tax advantages not typically available with other types of assets.

Under current federal estate tax law, the first $2 million in your estate is exempt from estate tax, but anything in excess of this amount is subject to federal estate tax at rates as high as 46 percent (and some states have their own estate tax). The goal is to make that exemption go as far as possible. Life insurance–as long as it is acquired by a properly drafted and administered irrevocable trust–can pass to your daughter free of estate tax at your death, while preserving your federal estate tax exemption to apply to non-insurance assets in your estate.

Gregory Hayes, partner, Day, Berry & Howard, Stamford, Conn.

The question is whether estate shrinkage due to estate taxes will prevent you from realizing the legacy you want to leave your family and possibly your community.

An attorney who specializes in estate planning and a financial advisor will help you define your goals, as well as develop strategies to help you achieve them. The use of life insurance should be explored to determine if it is an efficient way to pay estate taxes, which under current law could be nearly $5 million assuming death after 2010. The number only goes higher if we factor in estate growth.

However, whether life insurance is an option in this case will depend on medical underwriting. Assuming you obtain a favorable offer from an insurer, permanent coverage (either universal or whole life) should be used to fund this long-term need because term insurance is better suited to address a short-term need.

Matthew Sinclair, financial services representative, New England Financial, White Plains, N.Y.

When a young child is involved, a written plan is prudent.

The estate taxes on $10 million in liquid assets will probably have a much greater impact on your daughter’s financial future than the inconsistency of your consulting income. Consider purchasing permanent life insurance in an irrevocable life insurance trust to help offset this loss. Though your insurance premiums may be slightly higher given your medical history, the death benefit will not be subject to estate or income tax and can help pay the taxes on your estate.

A sound plan includes a review of your assets and a candid discussion about your financial hopes, dreams and fears. If income concerns you, diversify any cash you have in bank accounts for greater yield. Consider investing in a Roth 401(k) retirement plan (new in 2006) or a 529 college savings plan for greater tax efficiency and creditor protection. To limit your financial exposure, review your personal excess liability and professional liability coverage regularly.

David B. Higger, Higger & Associates, New York

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