Section 2036 retained interest refers to the federal estate tax rule under Internal Revenue Code Section 2036 that pulls certain transferred property back into a decedent's taxable estate when the decedent retained specified rights or interests. These retained interests can include the right to income, enjoyment, or possession of the property, or the right to designate who will enjoy it, for life or for a period that does not end before death. Common examples are transfers to trusts where the grantor keeps an income interest or continues to live in a residence that has been transferred. If Section 2036 applies, the full date-of-death value of the property is included in the gross estate, even though formal ownership may have been transferred earlier. This rule is a central guardrail in estate planning, limiting how much tax can be avoided by retaining significant control or benefit after a transfer.

Estate planners and tax advisers evaluate Section 2036 retained interest issues whenever a client considers transferring assets to a trust or family member while still enjoying the benefits. They structure irrevocable life insurance trusts, qualified personal residence trusts, and grantor retained annuity trusts with careful attention to whether the grantor's retained rights could trigger inclusion under Section 2036. Life insurance advisors working with large estate cases coordinate with attorneys to make sure ownership of policies funding estate taxes is structured to avoid inadvertent retained interests that would bring the death benefit back into the estate. Understanding Section 2036 retained interest helps advisors explain why some clients cannot "have it both ways" by giving property away while still retaining broad control and enjoyment without estate tax consequences.