IRS Section 2702 is the practitioner shorthand for the Internal Revenue Service's application of IRC Section 2702, which sets special valuation rules for intra family transfers of interests in trusts when the transferor retains a term interest such as an annuity or unitrust payment. Under these rules, non qualifying retained interests are valued at zero, increasing the taxable value of the transferred remainder interest. Properly structured grantor retained annuity trusts and similar vehicles, however, can use qualifying retained interests to reduce the reported gift. For planners, IRS Section 2702 emphasizes that GRATs and related strategies must follow detailed requirements, and that the IRS closely scrutinizes attempts to undervalue retained and remainder interests in family trust arrangements.

In day to day usage, advisors reference IRS Section 2702 when coordinating with attorneys and valuation professionals on proposed GRATs or other retained interest trusts. They must ensure that annuity terms, payout schedules, and reversionary interests satisfy regulatory standards so that the retained interest is respected for valuation. Life insurance may be used alongside 2702 strategies to hedge mortality risk if the grantor dies during the trust term or to provide liquidity for taxes and equalization among heirs who do not receive the trust remainder. Advisors explain that while GRATs can be powerful tools for shifting appreciation, the IRS expects strict adherence to Section 2702 rules and documentation. Understanding IRS Section 2702 allows producers to position life insurance as a complementary asset in sophisticated estate freeze plans while acknowledging the limits of aggressive valuation tactics.