I have built and sold many successful businesses. I would like to leave some of the wealth I have generated to my children, but do not want to break the entrepreneurial cycle; I would rather they carve out their own path than rely on inherited wealth. How best can I manage this?

Family business

There is no single answer to this difficult question. An entrepreneur's talent for generating wealth is regularly coupled with a strong inherent drive to succeed. Entrepreneurs can find it hard to move from a philosophy of taking business risk to one of asset protection and succession planning. The best advice is to engage early with the issue of succession planning and embark upon a structured succession strategy over time.

It is possible that your children will not have the same drive and motivation as you and will not necessarily wish to follow the same entrepreneurial route. If there is a family business or family estate, this can provide an opportunity to pass value to them in a form that requires them to work to maintain that value rather than spend it. Creating a family charter for the business can provide a framework to ensure that younger generations must prove their worth before taking ownership and control.

Trusts can protect assets

You might also consider creating a trust under your will that separates the management of the assets from their enjoyment and ensures continuity of management. This can help safeguard capital for future generations and one or more of your children could be brought in as trustees when they are sufficiently financially mature. A trust can also assist in protecting assets on matrimonial breakdown.

Early financial education for your children can assist here to make sure that they understand investment concepts and the difference between income and capital. You might, for example, consider creating a charitable foundation during your lifetime, again with some of your children as trustees, helping them to learn the responsibility of managing wealth while they are still relatively young.

If you begin a succession plan when your income is still relatively high, you can take advantage of an inheritance tax relief for transfers into trust if the transfers are made from surplus income.

This article originally appeared in the Financial Times in February 2014.