IRC Section 2501 imposes the federal gift tax on transfers of property by gift during life. Together with the estate tax provisions, it forms part of the unified transfer tax system. Taxable gifts generally occur when a donor transfers property for less than full and adequate consideration, subject to exclusions such as the annual exclusion, direct payments of tuition or medical expenses, and use of the lifetime unified credit. In life insurance and annuity planning, Section 2501 is central when clients make premium gifts to an irrevocable life insurance trust, transfer ownership of an existing policy, or gift interests in closely held entities used to fund buy-sell agreements. The value of the property transferred is usually its fair market value at the time of the gift. Understanding 2501 helps advisors frame how lifetime gifting can reduce the size of the taxable estate, shift future appreciation out of the donor's estate, and coordinate with overall estate tax planning.

In everyday practice, advisors apply IRC Section 2501 whenever clients fund ILITs, make large cash gifts for premium financing collateral, or transfer business interests tied to insurance-funded buy-sell plans. Premium gifts to an ILIT, for example, may qualify for the annual exclusion when combined with properly administered Crummey powers, while larger single premiums or lump-sum transfers might use part of the donor's lifetime exemption. Advisors work with CPAs to prepare Form 709 gift tax returns, track cumulative taxable gifts, and anticipate how current gifting will affect future estate tax calculations. They also model scenarios in which clients use aggressive lifetime gifting, supported by life insurance leverage, to remove appreciating assets and associated growth from their estates. By understanding how IRC Section 2501 interacts with Sections 2503(b), 2001, and related provisions, advisors can position life insurance not only as a protection tool but also as a key component of a strategic, long-term wealth transfer program.