As the parents of wealthy families pass into retirement and old age, health becomes a central concern for their financial plans.

Not only can rising costs for health maintenance weigh against assets in retirement, but contingencies like accidents and sudden illnesses can dent the family fortune, while parents’ cognitive decline might put children at odds with each other on what to do with a financial legacy.

“When we do our annual reviews, health care coverage is one of the questions on our menu,” says Kenneth Burke, a wealth management advisor with Merrill Lynch’s Burke/Cox Group in Heathrow, Fla. “It is interesting when we ask about costs, we try to ask differently each year to get some kind of number to use as a starting point, but that number has a lot of variance over the years.”

Burke has started to recommend that clients use trusts dedicated health-care needs if there’s a concern about rising costs and potential disputes between heirs.

The trust is not a typical recommendation for covering healthcare expenses for high-net-worth investors, says Marcia Jory, a private client advisor with U.S. Trust in Portland, Ore.

“One of the factors in dealing with high-net-worth clients is that healthcare becomes less of a concern, in general terms they have resources that exceed the amount that they anticipate they would need to spend on healthcare costs,” says Jory. “Keeping a good amount of dry powder, if you will, in a portfolio to anticipate or to cover unanticipated expenses and rising costs is important. Clients have Medicare Part A, typically Part B as well, and then cover the rest without much issue, possibly because of the volume of their wealth, possibly because they’ve worked with an organization with a good defined benefit plan, or they might have purchased a great long-term care plan in anticipation of their healthcare needs later in life and planned early on.”

However, Jory acknowledges that healthcare planning strategies might be changing as clients live longer and their children have more time to worry about issues like dementia and long-term care

“At this point I’m hearing more from second generation folks who are concerned about their aging parents,” Jory says. “This might be a generation of heirs, or it might be a second generation that actually has the wealth themselves and their parents don’t, it becomes a conversation about what to do to help their parents protect their assets. More frequently, I’m hearing that these children are hiring lawyers to work with their parents on Medicare and Medicaid planning and to protect assets against healthcare costs so that their parents don’t become destitute in retirement.”

Concerns about long-term care brought clients back into Burke’s office, where they asked whether some form of insurance coverage was appropriate.

“We went through and confirmed that they needed coverage, but there was another angle that we discovered in our discussions,” Burke says. “We had a middle child who logically understood that her parents would be fine, but the emotion of if and when her they would start to experience cognitive decline or become different people was weighing on her. She wanted to know how we were going to take care of them, and that spurred this thought of setting up a trust.”

The family’s wealth had been made through the sale of a business in a volatile industry, so the clients and their children were especially risk averse. Burke sent his clients to an attorney, who set up a trust in such a way that the assets could only used for the parents’ medical needs, but transparent enough so that all the children could monitor and access the account.

Jory says that setting up accounts dedicated to healthcare needs is a good idea, as many high-net-worth clients prefer to focus on enjoying their retirement than worrying about how to deal with their eventual physical and cognitive decline.

“Most folks as they age still want to plan to use their funds for leisure, travel, or to be left as a legacy for their family,” Jory says. “The reality is that if they have a medical need, their assets might become necessary if they haven’t adequately planned. It’s a highly individualized issue, but there’ a tension between planning pieces dealing with their idealized, hoped-for retirement, and what their own reality looks like as they get into those retirement years.”

Burke says the trust was exactly what his clients, who had been with him for nearly 30 years, needed at the time.

“Since we’ve done that, that really eased their minds,” Burke says. “The whole family understands that this one account is more than adequate for them not to have to change their style of living due to health expenses, and so that no kind of implosion in the market is going to affect it. It was about knowing the family and knowing that something had to be done. When this trust was set up, I hoped it would ease the emotion, and it has.”

In keeping with his clients’ preferences, the trust is invested half in cash, half in a laddered portfolio of municipal bonds with short durations. While Burke says the account has plenty of money in it, the family can contribute to it as needed or change the investment allocations to enhance growth or returns as needed.

“In some ways this might be better than a health savings account because it doesn’t have any limits on contributions or how the funds are invested,” Jory says. “On the other hand, it also lacks the tax benefits as there might be with an HSA. For a younger, wealthy family, if they’re employed and have the opportunity to establish an HSA, that would be a better way to start setting money aside to establish a level of security for future medical needs. I would also encourage them to look at long-term care insurance.”

Trusts are often preferred because they allow wealthy clients to keep their assets private, and enable a transparent process for withdrawing or removing the funds, changing trustees, or changing beneficiaries, says Jory.

Burke agrees that for younger high-net-worth clients, it’s preferable to use HSAs for the tax advantages, but for older clients they provide peace of mind, privacy and protection.

“The only people this would be appropriate for are families in a similar situation, where we want them to come together and understand that we’ve adequately covered these healthcare costs,.” Burke says. “If clients need to know that that one account or these two accounts have nothing to do with anything else, this kind of strategy fits the bill.”