The founder of the International Polo Club Palm Beach in Wellington, Florida, sparked a flurry of news and discussion when he recently adopted his 42-year-old girlfriend. According to the entrepreneur's attorney, the millionaire made the unconventional and rather controversial move in order to preserve his children's interests in an irrevocable trust, a popular estate planning tool for many Florida residents.
When the entrepreneur established his trust, he appointed a wealth management firm to oversee the trust's administration. Because the trust is irrevocable, the entrepreneur has no authority to remove the management firm as the trustee. Claiming to have lost confidence in the firm's management, the entrepreneur elected to adopt his adult girlfriend in order to make her a beneficiary of the trust.
By adopting his girlfriend, the entrepreneur gave her the legal authority to challenge the trustee's management of the irrevocable trust. Facing possible prison time in relation to a hit-and-run auto accident, the entrepreneur asserted that adopting his girlfriend was the only way to make sure somebody would be in a position to look out for his children's interests.
An aspect of irrevocable trusts is that the founder relinquishes all control and access to trust assets. Under the right circumstances, though, the benefits can outweigh the sacrifice. For example, because the assets of an irrevocable trust are not available to the trust founder, they are also shielded against claims of creditors. Likewise, although a trust may have to pay tax on income, irrevocable trust assets are not subject to estate tax when the trust founder dies. For these reasons, an irrevocable trust can be a valuable tool for transferring wealth across generations.
Beyond raising questions about the policy and principles underlying adoption law, the entrepreneur's situation highlights the importance of carefully choosing a trust administrator. As the name implies, an irrevocable trust cannot be undone by the founder. That is why trust founders would do well to choose wisely when appointing a trustee who inspires enduring confidence.
Source: Fox News, "Florida businessman, 48, adopts adult girlfriend, 42, as his daughter," Feb. 1, 2012