Family limited partnerships and limited liability companies let you reduce estate taxes by transferring assets like a family business, farm, real estate or stocks to your children now, and still keep some control. They can also protect the assets from future lawsuits and creditors.

Here’s how it works: You and your spouse can set up a family limited partnership or limited liability company and transfer assets to it. In exchange, you receive ownership interests. Though you have a fiduciary obligation to other owners, you can control the FLP, (as the general partner,) or LLC ,(as manager.) You can give ownership interests to your children, which removes value from your taxable estate. These interests cannot be sold or transferred without your approval, and because there is no market for these interests, their value is often discounted. This lets you transfer the underlying assets to your children at reduced value, without losing control. Such techniques work particularly well for assets such as investment property.

However it is Important to Note: FLPs are not necessarily recognized as legitimate estate planning tools by the IRS. Nor is this option appropriate, or even available, in most situations. A creation of an FLP or LLC requires a legitimate business purpose aside from estate planning or tax planning reasons, (such as limiting the liability of the business creators.) Furthermore, this is a complicated and potentially expensive technique that should only be utilized by clients aware and willing to accept both the responsibility and potential consequences.