(FORTUNE Magazine) – A BIG CHUNK of the trillions that the baby-boom generation will inherit is in family-owned businesses that will pass to the kids as soon as mom and dad march off in stately fashion to Valhalla -- or Boca Raton. It is startling just how much wealth is tied up in such enterprises. Consider: Sole proprietorships and partnerships earn 17.9% of U.S. business income -- a hefty $580 billion. Fully 18% of the financial assets held by U.S. households -- some $2.4 trillion -- is invested in privately held concerns, mostly family-run outfits. That is at least $300 billion more than the amount that households have directly invested in public corporations. No fewer than 31,000 family-held businesses have annual sales of more than $25 million. All in all, 14% of FORTUNE's subscribers own or are partners in private businesses, and family ownership is significant in about a third of the FORTUNE 500, including the second-largest company in the world, Ford Motor. But every transfer of ownership and power in family companies is an opportunity for disaster, and fewer than one-third of them survive squabble- free into the second generation. The list of famous businesses besmirched by family feuds goes on like Homer's catalogue of doomed heroes sailing off to Troy: the Dorrances of Campbell Soup, the Binghams of Louisville's Courier- Journal, the Johnsons of Johnson & Johnson. There are three simple rules for avoiding the fate that an owner-manager finds worse than death -- knowing your business will not continue after you are gone. Plan carefully and early. Groom a successor. Be pragmatic about estate taxes. The last commandment is especially important. Planning helps you reduce taxes sensibly and honestly, but the proper function of planning is not so much to avoid taxes but to pass on a viable business. Says economist Leon Danco, president of the Center for Family Business, a Cleveland consulting firm: ''Taxes are a fact, but businesses collapse because of internal problems.'' Like most commandments, these three are easy to remember and hard to heed. A study of 178 family businesses by Baylor University's Institute for Family % Business found that 78% of owner-managers expect to pass the business on to the next generation but only 34% of them have written a succession plan. It's not difficult to figure out why. A man or woman who builds a business for a living does not think often about dying. It usually takes a near-fatal illness or the death of a close friend to shake the founder into admitting that to everything there is a season. Even so, getting down to particulars is tough. Says Peter Davis, who runs the family business program at the Wharton School: ''The founder feels that anything he gives up to his children is another nail in his coffin.'' Certainly you couldn't blame Leonard S. Shoen, 74, for seeing it that way. Shoen, who started U-Haul International, the Phoenix-based car and truck rental business, began transferring stock to his children while they were still young. Trouble was, the Shoen kids kept coming, eight sons -- one of them adopted -- and five daughters, from three different mothers. Never expecting to father a rugby team, Shoen parceled out the shares as the kids arrived and ultimately gave away 95% of the company. U-Haul grew into Amerco, with revenues of about $1 billion, and in 1986, two of Shoen's sons, Edward, 41, and Mark, 39, seized control. The senior Shoen found himself voted out of the business, and soon after, his eldest son, Sam, 46, who had been running the company, quit. The family has since split into two camps. Edward and Mark are running the show, while Leonard and Sam are suing to regain control of the company. The battle has gotten violent, with stockholders' meetings degenerating into slug-fests. In the most outlandish incident so far, Michael Shoen, 43, was reportedly beaten up by Edward and Mark. Michael's photograph, complete with bruises, was splashed across the business section of the Arizona Republic newspaper. Says the aggrieved dad: ''I created a monster.'' BY CONTRAST, the case of the Newhouse family company, Advance Publications, is a paradigm of careful planning. Among other assets, Advance owns Random House publishers, 26 newspapers, and more than a dozen magazines (including Glamour, Vogue, the New Yorker, and Vanity Fair). Over the course of many years before he died in 1979, Samuel I. Newhouse gradually ceded majority ownership of Advance Publications -- but not operating control -- to his brothers, Norman and Ted, his wife, Mitzi, and his two sons, S. I. Jr. and Donald. They received a total of 3,500 shares of preferred stock, but Sam held . on to 1,000 shares of common. Operating control was vested entirely in the common. By passing on ownership of most of the business well before his death, Newhouse reduced his estate tax to a paltry $49 million on a business then valued at $1.5 billion. The IRS disputed the Newhouse calculations, claiming the estate owed the Treasury $610 million more, but after a ten-year wrangle, the U.S. Tax Court last winter ultimately sided with the Newhouses. Today, Advance is worth $10 billion, making Si Newhouse, 62, and Donald, 60, the second-richest Americans after the Mars clan. Sam Newhouse received constant reminders that he had to plan carefully for his succession. Virtually every newspaper that the Newhouses acquired was on the block because of family problems. Intent on avoiding the same fate for his own business, Sam brought his sons in as young men and had them work their way from the ground up. By the time he became too ill to work, shortly before he died, both sons were ready to take over. They divided Sam's management responsibilities, with Si running the books and magazines and Donald the newspapers. Grooming a successor was relatively easy for Newhouse because he sired only two children. Other owner-managers, contending with a brood, have a tougher choice. The rule of primogeniture can work, as the smooth, long-planned transfer of power at Forbes magazine demonstrates. When Malcolm Forbes died in February, 51% control of the family business passed to his eldest son, Malcolm Jr., who had been president and deputy editor-in-chief of Forbes. But all five Forbes children have an equal financial share of their father's estate. While no one knows as yet how inheritance taxes will affect the Forbes family, the estate is said to be worth at least $500 million. Those left out of the lucky sperm club can justifiably complain, but one advantage of primogeniture is that all members of the family know very early in their lives on whose shoulders the mantle will fall. As the kids grow up, the parents' choice becomes more a fait accompli and less a show of favoritism. MERIT is a better criterion than birth order, says Danco. But merit has a price -- the Smothers Brothers syndrome, as in ''Mom always liked you best.'' Six years ago, Sy Syms, 63, founder of the eponymous $300-million-a-year New Jersey discount clothing chain, named his daughter, Marcy, president and chief operating officer of Syms. The acid test of merit had come when Sy asked Marcy what she would say to a group of Syms professional managers who demanded equity stakes in the business. Her answer was an unequivocal but unprintable negative. Sy's response: ''You're it.'' Since Marcy's appointment two of her three brothers left the company. One has returned, however, as a merchandise manager. Says Marcy about her brothers: ''We've been through a lot.'' Curt Carlson, 75, founder of Carlson Cos., the $6.2-billion-a-year service conglomerate including Ask Mr. Foster Travel, Radisson Hotels, and T.G.I. Friday's restaurants, regards mapping out the transfer of the business as the founder's most important final job. His task was eased, however, by the fact that the younger of his two daughters married a businessman, Edwin Gage, who joined the company 22 years ago. When Carlson started thinking about a successor, Gage was a likelier candidate than the daughters, who had never been employees of the company. Last fall Gage, 49, took over as CEO, and Carlson had a complete estate plan in place, including a mandatory arbitration procedure should family feuds break out after he is gone. The changing of the guard was formalized with an elaborate black-tie dinner for family and friends and an open house for 5,000 Carlson employees and their families. That transfer ritual will make meddling by the old CEO more difficult. Carlson now serves as chairman of newly formed Carlson Holdings, which owns Carlson Cos. As chairman, he will have more time to devote to the holding company's two other, smaller real estate and investment subsidiaries as well as to write a long-planned book on entrepreneurship. At Carlson Cos. he will watch but not touch: ''I'll have to stick to my new management formula -- nose in, fingers out.''