The Economic Growth and Tax Relief Reconciliation Act of 2001 earmarked the federal estate tax for a one-year repeal in 2010, with full reinstatement in 2011. Ever since, the debate has raged over whether or not repeal should become permanent.

What a difference a day makes. The election of a Democratic-controlled Congress on Nov. 7, 2006 has cast new uncertainty over the possibility of repeal. Many pundits believe the Democrats will keep the tax on the books for the foreseeable future.

Suddenly, estate planners are reporting new interest in estate tax planning while life insurers are introducing new life insurance policies to take advantage of what now appears to be a growing market. Research by LIMRA International, Windsor, Conn., earlier this year found that 70% of affluent consumers feel that protecting their estate from taxes is a “very important” or “critical” financial goal. However, 68% of respondents with an estate plan did not take action to update their plan, despite uncertainty over repeal.

This means estate planners and other financial professionals need to reach out to their affluent clients and help orient them to the real possibility that their estates will be subject to the estate tax. In 2011, if the estate tax is reinstated after a one-year hiatus as currently scheduled, the highest marginal rate will be 55% and the personal exemption will be $1 million. That translates into a big bite out of your client’s financial legacies.

Individuals with $1 million and couples with $2 million in net worth need to plan for this possibility. Given the relative uncertainty of America’s political landscape, they also should hedge their bets against the potential repeal of the tax if the deck in Congress suddenly gets reshuffled. But where should they start?

Certainly, anyone whose estate may be subject to taxation should create as much liquidity as possible. Many people have traditionally placed life insurance policies within an irrevocable life insurance trust (ILIT) to provide a ready source of cash to cover estate taxes and other expenses without adding to the size of the taxable estate itself.

Some clients who consider themselves on the cusp for estate taxation may be reluctant to part with the dollars necessary to purchase a large life insurance policy or to fund a policy that is beyond their reach because it’s placed within an irrevocable trust. Proper drafting techniques can alleviate this problem, however, ensuring that at least one member of a couple has indirect access to the assets within the ILIT.

This is accomplished using an “ascertainable standard” that obligates the trustee to make disbursements to meet requirements for a beneficiary’s health, education, maintenance and support. The ascertainable standard is most effectively exercised when the trustee enjoys a close or friendly relationship with the insureds. Typically the trustee is an adult child or close family friend.

Incorporating such an “access provision” as part of an ILIT allows a married couple to maintain a life insurance policy separate from the taxable estate while permitting one of the spouses indirect access to the policy’s cash value. One spouse is the grantor of the irrevocable trust and the other spouse is a beneficiary of the trust. The trustee (who is not one of the spouses) typically also has discretion to make distributions to the spousal beneficiary. Such access provisions can be used as part of an ILIT that includes either a single life or survivorship life insurance policy.

In addition, term life insurance may be needed to protect against the grantor of the trust dying before the beneficiary of the trust. The death benefit from the term life insurance policy is then used to pay the premiums on the permanent life insurance policy within the ILIT.

Life insurance policies themselves also offer estate-tax-friendly features. Many of the last survivor policies on today’s market have been specifically designed to help policyholders navigate the ever-changing political currents surrounding the estate tax. Four key provisions come to mind.

First, most last survivor policies include an estate tax repeal rider at no extra cost. These riders typically allow the policyholders to surrender their life insurance without being subject to surrender charges if the estate tax is repealed in 2011. This is an important feature considering LIMRA’s research determined that nearly three in 10 policyholders would cash in, sell or reduce their coverage if they no longer needed it for estate planning.

Also found in many last survivor policies is an estate protection rider that pays an additional death benefit if both insureds die within four years of purchasing the policy. The benefit addresses the federal “look-back period” that includes the death proceeds in the taxable estate if death occurs within three years of the policy being gifted to the client’s ILIT. In most instances, the rider is available at a very modest additional cost.

Other clients may have concerns about the impact of changing circumstances on their estate plans and the need to own life insurance. Some insurers offer a rider, typically referred to as an exchange option that allows a last survivor policy to be exchanged for two individual policies in the event of divorce, reduction of the maximum federal estate tax bracket or repeal of the unlimited marital deduction. The single-life policies are issued without underwriting and the premiums are based on each insured’s age, gender and risk class as of the exchange date.

The face amount of each single-life policy will be for half of the survivorship policy face amount. However, splitting a last survivor policy may result in adverse income tax consequences.

Finally, many last survivor policies allow policyholders to make unscheduled increases or decreases in their policy’s face amount as their needs change. This is particularly advantageous for affluent consumers whose net worth appreciates significantly over time.

Such situations are becoming increasingly common as the number of affluent families in America is on the rise. Many of those families are growing increasingly concerned about the potential impact of the estate tax on their financial security. LIMRA found that 62% currently have an estate plan and 44% of those that don’t plan to establish one.

Make sure those plans are built to withstand the winds howling around the estate tax. Build flexibility into your clients’ estates plans and help ensure their families can withstand whatever change may come. While few of us can predict changes in tax law, all of us need to be prepared for those changes when they do come.

Patrick Smith, J.D., CLU, is vice president and director of advanced markets for Hartford Life. He can be reached at .