Section 2038 revocable transfers is an estate tax provision that causes assets to be included in a decedent's gross estate when the decedent retained a power to alter, amend, revoke, or terminate a transfer. Even if the transfer placed legal title in a trust or another person's name, the existence of a retained power to change beneficiaries or modify enjoyment can trigger inclusion at death. Revocable living trusts, powers to substitute assets, and certain retained powers in irrevocable trusts can all raise Section 2038 concerns. The rule works together with Section 2036 to determine when property is effectively still under the decedent's control for estate tax purposes. If Section 2038 applies, the property is generally valued at its fair market value at death, increasing the taxable estate and potential estate tax liability.

Estate planning attorneys review Section 2038 revocable transfers issues whenever they design trusts that reserve powers for the grantor or a related party. They distinguish between administrative powers, which may not trigger estate inclusion, and substantive powers that affect beneficial enjoyment. Advisors see the effects of Section 2038 when they learn that assets in a revocable trust are treated as if still owned by the grantor for estate tax, while assets in properly structured irrevocable trusts may avoid inclusion. When life insurance is owned by a trust with retained powers, planners review whether those powers cause the death benefit to be pulled back into the estate. Understanding Section 2038 revocable transfers helps advisors frame conversations about control versus tax outcomes and the importance of carefully drafted trust provisions.