The one shared mechanic, stated precisely. Section 2001(b) computes the estate tax on the taxable estate plus post-1976 adjusted taxable gifts, so a gift does not remove its own value from the transfer-tax base. What a freeze removes is the growth that happens after the transfer, which is never measured by either the gift tax or the estate tax. Every freeze is therefore a bet that the asset will appreciate, and specifically that it will appreciate faster than whatever interest rate or valuation assumption the technique is measured against.
Why the freeze became a regulated category, and the history is short enough to be worth knowing. Congress attacked the classic corporate recapitalization freeze in 1987 by adding section 2036(c), which treated a transfer of a disproportionately large share of an enterprise's potential appreciation, with an interest retained, as a retention of enjoyment that pulled the whole thing back into the estate. Congress struck it three years later, in 1990, replacing it in the same act with Chapter 14, headed "Special Valuation Rules." The change of approach is the point: instead of pulling frozen assets back into the estate, Chapter 14 attacks the valuation that made the freeze attractive.
What Chapter 14's four sections actually do. Section 2701 applies special valuation rules to transfers of certain interests in corporations and partnerships, the provision aimed squarely at the recapitalization in which a parent keeps a preferred interest and passes the common. Section 2702 applies them to transfers of interests in trusts, which is why a retained interest in a trust is generally valued at zero unless it takes a prescribed form. Section 2703 provides that value is determined without regard to any option or right to acquire property below fair market value, or any restriction on the right to sell or use it, unless the arrangement is a bona fide business arrangement, is not a device to transfer property to family members for less than full consideration, and has terms comparable to arm's length ones. Section 2704 treats a lapsing voting or liquidation right in a family- controlled entity as a transfer, and disregards certain restrictions on liquidation in valuing an interest transferred within the family.
The typed index. Each of these is a freeze, and each has its own entry.
A grantor retained annuity trust freezes by transferring property to a trust while retaining a fixed annuity for a term; only the growth above an assumed rate reaches the remainder beneficiaries. A qualified personal residence trust does the same with a home, substituting a retained right to live there for the annuity. An intentionally defective grantor trust freezes by sale rather than by gift: the owner sells the appreciating asset to the trust for a note, keeping the note's fixed value and passing the growth. A family limited partnership freezes by entity: the senior generation transfers limited interests while retaining control, and the interests transferred are valued as the minority, illiquid interests they are. The classic corporate recapitalization, in which the senior generation exchanges its stock for a fixed-value preferred interest and the next generation takes the common, is the technique section 2701 was written for.
Valuation discounts are the lever, not a technique. Nearly every entity freeze is worth more if the interest transferred can be valued below its arithmetic share of the whole, which is why the discount question and the freeze question arrive together and why sections 2703 and 2704 sit where they do.
The honest ledger. Against the transfer tax saved on the growth, set three costs. Property successfully moved out of the estate receives no new basis at death, so the appreciation that escaped transfer tax stays fully exposed to capital gains tax. Every technique is documentation-heavy and needs a defensible valuation, which is the number most likely to be challenged. And every one requires the owner to give up something real, permanently, at an age when flexibility may be worth more than the tax.
