If mom retains a life estate, the value of the real estate is actually includible in her estate, so there would be a step up for the real estate on mom's death. If so, there's no difference in mom's estate taxes, but the kids know the real estate can't be transferred to someone else (lots of cases of people unduly influencing the elderly to make transfers that undo other estate planning).

But the estate tax savings referred to could be discounts at the death of the kids, since they would own an LLC interest, not a direct interest in real estate. That could mean a discount for lack of marketability, depending on the terms of the operating agreement. It also means if the real estate is in California or any other state different from where the kids reside, they won't have to probate in the state where the real estate is located. LLC interests are personal property taxable in the state of residence of the decedent, even if the LLC owns real estate.

The use of an LLC to own commonly managed assets that could be income producing or at least could appreciate is not all that unusual. The only other option for management of the assets would be a trust, but that doesn't allow the beneficiary any legal right to participate in management decisions, the way an LLC can.