A limited partnership which is owned among family members is called a Family Limited Partnership (FLP). A properly formed and funded FLP can provide estate and gift tax savings, as well as asset protection. With an FLP you can retain control over the transferred assets while enjoying these advantages.
After you have established and transferred your assets to an FLP, you can make gifts of limited partnership interests to your children or other beneficiaries. This can accomplish several different estate planning objectives at the same time.
First, the value of your estate is reduced by the value of each limited partnership interest which you give away, thus reducing the tax which your heirs would have to pay upon your death. The gifts are made using your annual gift tax exclusion or your lifetime exclusion, so there are no gift taxes to pay on the transfers.
In addition, the value of the limited partnership interests which you transfer to your beneficiaries should be far less than the value of the underlying assets in the partnership. Since limited partners do not have any control over the day-to-day operation of the partnership, a minority discount can be applied to reduce the value of the limited partnership interests which are being gifted. Likewise, because the limited partnership is a closely-held entity (not publicly-traded), additional discounts can be applied because of a lack of marketability of the limited partnership interest. These discounts allow you to leverage the FLP as a vehicle to transfer more wealth to your beneficiaries, while still retaining control of the underlying assets.
Finally, a properly-structured FLP can provide some creditor protection since the general partners are not obligated to distribute earnings of the partnership.