I've said it before and I'll say it again... I firmly believe that, had Kate stayed around past season 2, she would have played the story role that eventually went to Justine.
Kate already had the relative-killed-by-vampires issues, not to mention daddy-never-loved-me issues, which would have led her to be a perfect disciple for Holtz.
Yes, she seemed to be in detente with Angel after "Epiphany," but she's backslid and changed her mind on that before, and a charismatic and persuasive demon hunter like Holtz could certainly cause her to do it again.
The fact the Angel miraculously entered Kate's home suggests there was a role for to play for which she needed to be alive, and Justine's role in the abduction of Connor would certainly count as that, when considering Jasmine's ultimate game plan.
Imagine Kate being the one to slit Wesley's throat and leave him for dead.
I just can't think of a role she would have played after season 3, that's all.