Michael (on Vito's advice) removed Tom as consigliere for the main purpose of insulating him legally and in terms of repspnsibility from what the Corleone family was about to do (i.e. wipe out the heads of the Five Families).

Michael and Vito knew if Tom were still part of the family hierarchy when he five family heads were wiped out, he would share reponsibiliity in the eyes of the Feds and the other families, and would very likely end up in jail or dead , and therefore would be lost to the Corleone Family as a useful factor in the future. By removing Tom from the direct family business, Michael and Vito kept his hands clean and thus preserved him as a "emergency" option to take control if a crisis later removed Michael from power (as in the attempted hit at the Nevada lake house). This whole plan only works if Michael can be completely confident of TOm's loyalty, and toward the end of GFII he is starting to have his doubts.

GF III in my opinion was mainly intended to deal with the final showdown betweeen TOm and Michael for control of the family in the 1960s and 70s.