This section of IRS code is also known as the three-year rule. It essentially says if an individual dies within three years of transferring certain assets out of his or her estate then those assets are subject to federal estate taxes. It is important to avoid being subject to the three-year rule with regards to your life insurance. Many people use life insurance as an important estate planning tool by placing a policy in an irrevocable life insurance trust. To avoid being subject to IRC Section 2035 create the irrevocable life insurance trust and then have the trust apply for the life insurance policy instead of obtaining the policy first and then creating the trust.