Understanding Estate Taxes
23. Family limited partnership (FLP), limited liability company (LLC)
Both a family limited partnership (FLP) and a limited liability company (LLC) let you reduce estate taxes by transferring assets like a family-owned business, farm, real estate or stocks to your children now - yet you keep control. They can also protect the assets from future lawsuits and creditors.
Here's how they work. You and your spouse can set up a family limited partnership or a limited liability company, and transfer your assets to it. In exchange, you receive ownership interests. Though you have a fiduciary obligation to the other owners, you control the family limited partnership or the limited liability company either through the general partner (for the FLP) or as manager (for the LLC).
You can give ownership interests to your children, which removes value from your taxable estate. The ownership interests cannot be sold or transferred without your approval and, because there is no market for these interests, their value is discounted. So you can transfer the underlying assets to your children at a reduced value - without losing control.