Donald Trump made headlines again last Fall when he announced that instead of naming one of his three eldest children as heir to his fortune, as would have been customary, they will all share equally in ownership and responsibility in leading his multi-billion financial and real estate empire.  Also notable is how carefully he and they prepared for this decision, since each of the heirs has contributed significantly to the family brand and has been responsible for significant deals since reaching young adulthood.  They range in ages from 30 to 37.

There are many lessons here to help other entrepreneurs to avoid the unpleasant consequences I have seen repeatedly of poor succession planning.  For example, the founder/owner’s retirement plans hinge upon one or more of the children taking over the business—the family’s main asset.  After working at the business for a few years, however, the off-spring decides to seek a career elsewhere, leaving the company behind.  At this point, the owner sees no option but to sell under duress at potentially disadvantageous terms or to postpone the long-awaited departure by several years while preparing for a more orderly exit.

So how does one prepare for an orderly transition to an heir and minimize the chances of last-minute surprises?

DEVELOP AN EDUCATION AND CAREER PLAN.  No heir wants to place his or her life on hold while not knowing what is planned, especially if a sizable inheritance is a settled fact.  The least a successful entrepreneur should require of eligible heirs is that they obtain the best education available.  Many impressive entrepreneurs lack a college degree, but few successful executives do.  If your heirs lack the drive, discipline, and intellectual curiosity to get a first-rate college education, do they have the traits needed to survive and thrive with competitors run by MBAs?  If an education leads them to decide to do something else altogether, you will at least know sooner rather than later and can plan accordingly.

DEVELOP MORE THAN ONE POTENTIAL SUCCESSOR.  To avoid sale of your business under duress, someone needs to be able to take over in the case of illness or disability.  This same person may be well suited to lead the company, and to grow its enterprise value, after the owner’s retirement.  If there is no heir ready to take over the company and the family wishes to retain the business, a common option is to hire a non-family President.  Ideally this is an executive who knows the family and the company well and has a proven record of success and integrity within it.

EXPECT TO STAY ENGAGED IF THE COMPANY STAYS IN THE FAMILY.  With an outside President, often the owner will function as Board Chairperson.  Even with an heir as new owner or President, it is not unheard of that the founder must come out of retirement to rescue the company from ruin.  Usually, this is because the career planning or succession planning has not been done carefully.

REMEMBER: AN HEIR MAY NOT BE AN ENTREPRENEUR.  The motivation and drive of the founder are not necessarily present in a family successor.  Inheriting a business is far less risky than starting one, however entrepreneurial the heir may be.  The heir may admire and envy the sense of adventure the founder experienced and seek similar accomplishments outside the firm.  One reason that Trump’s daughter seems to stand out as the favorite is that she has also started her own line of successful businesses.

PREPARE YOUR HEIRS FOR WEALTH.  U.S. Trust, a private bank unit of Bank of America, recently surveyed the ultra-high-net worth clients it is designed to serve (Wall Street Journal article, Jan. 11-12, 2014).  It found that 53% of them with children age 25 or older had disclosed very little about their wealth to their heirs.  If your business has made you rich, you may bequeath disaster if your heirs suddenly find themselves in possession of significant wealth, with no sense of how it was created or how to manage it.

TELL THE STORY AND SET THE EXAMPLE.  Two additional points from the WSJ article: “Tell the Rags-to-Riches Story” and impart down-to-earth values.  Your heirs need to hear about the hardship, dedication and sacrifice that lie behind all earned, entrepreneurial wealth. The character and discipline behind the wealth may be the most important and enduring legacy that they can inherit.  In regard to teaching values, Donald Trump’s adult children described in an interview that as kids it was nice to fly on the corporate plane if they could, but whenever they took an airliner, they always had to fly coach.  And if they blew their allowances early in the month due to poor planning and resource management, they were out of money until next month.

BE READY TO FIRE.  Nothing can drain motivation more than a sense of unearned and unlosable entitlement.  From the first day, let your heir know that there are job requirements and standards that must be met to earn the right to return to work the next day.  Better yet, let them know that they are not held to the same standards as everyone else, but to much higher ones, and then show that you mean it.

ENCOURAGE OUTSIDE EMPLOYMENT.  Even if your heir starts working in the proverbial mailroom of your company, he or she may still be treated by the rest of the company as the next in line for the throne.  On the other hand, it can be an eye opener to experience a different workplace with no privileges or favored treatment—just like most employees.  They can witness good and bad practices, and if they decide to return to your company they will do so with a greater sense of compassion, maturity, and gratitude.

CALIBRATE FINANCIAL INCENTIVES.  Would it be wise and benevolent to bestow substantial wealth on your heirs in exchange for minimal effort or no work at all?  Andrew Carnegie who dominated the U.S. steel industry in the 19th century may have been overly harsh, but also on the right path, in leaving his heirs very little.  How does the wealth serve your offspring if it ruins his or her character and stunts personal development?  Warren Buffett—worth about $60 billion—plans to donate most of his wealth to charity.  He said that he wants to leave his heirs enough money so that feel that they can do anything they want to but not so much that they feel free to do nothing.

You don’t have to be worth billions and own a real estate empire like Trump’s to insist that your heirs earn the privileges and responsibility they are to assume.  Instead of appointing one of his three eldest children to run his business when his time is up, he essentially created a triumvirate.  They have equal authority, and if there is to be one who fully assumes leadership, they will have to work it out.\