IRC Section 2036 addresses transfers where a person gives away property but keeps a significant retained interest, causing the property's value to be included in their taxable estate at death. Classic examples include retaining the right to income from transferred assets, keeping the ability to determine who receives benefits, or otherwise retaining enjoyment or control of the property. The rule is especially relevant in estate freezing and discount strategies that use family limited partnerships, LLCs, and certain trust arrangements. If the IRS concludes that the transferor effectively continued to enjoy the property after the transfer, IRC Section 2036 may apply and unwind the intended estate tax benefits. In life insurance planning, Section 2036 can be implicated if an insured's retained rights in a trust or entity holding a policy are so extensive that they are treated as having retained enjoyment. Proper design, respect for legal formalities, and consistent administration are crucial to avoiding inadvertent inclusion under this provision.

In everyday planning, advisors encounter IRC Section 2036 while evaluating family limited partnerships, recapitalized LLCs, and irrevocable trusts used for wealth transfer. A client may transfer marketable securities or business interests into a partnership, retain a controlling general partner interest, and gift limited interests to heirs. If the client continues to use partnership assets like personal property, commingled accounts, or routinely ignores distribution provisions, examiners can argue that the client retained full enjoyment of the assets, triggering Section 2036 inclusion. Similarly, if a grantor creates a trust that technically holds life insurance or investment assets, but the grantor informally directs distributions or retains excessive powers, the IRS may treat those rights as retained interests. Advisors work closely with attorneys and valuation experts to design structures that clearly separate control and enjoyment, document legitimate business and estate planning purposes, and educate clients about proper ongoing behavior so that carefully crafted life insurance and wealth transfer strategies are not undone by 2036 challenges.