A Unique Estate Planning Tool
Adoption of children is a relatively common occurrence in the United States. But, in most states, it is also possible to adopt an adult. The adult adoption tool has been used in planning for same-sex couples for decades. Now, it seems that its use may be spreading, in the right circumstances.
There are many reasons to adopt an adult, both legal and emotional:
- Establish a tighter bond between the parties
- Enable inheritance rights between the parties
- Enable the “child” to get health insurance on the “parent’s” plan
Let’s look at a situation to see how this might arise. John is the heir to a large sum of money. However, these assets are left in trust for him. At his death, the assets are to go to his children. The trust and state law do not exclude adult adoptees as potential children. If he has no children, the assets go to his cousins. If he had a limited power of appointment, he could send those assets elsewhere at his death. He does not. He wants the assets to go to his domestic partner, Mike. By adopting Mike, John can ensure that his assets go to Mike.
In a unique twist, adult adoption can give lifetime access to otherwise protected money. Floridian John Goodman had placed $1.5 million in an irrevocable trust for his children. He had two children at that time. The assets were invested and ballooned in value to several hundred million dollars. The transfer of assets into the trust was not a fraudulent transfer and Goodman had no interest in the trust. Thus, those assets were exempt when he became involved in litigation in which he was accused of drunk driving and killing a 23-year-old man and then leaving the scene.
Goodman, age 48, adopted his girlfriend, age 42. When she became one of his “children,” under the terms of the trust, she gained access to the funds in the trust. So, through the adult adoption, Goodman’s girlfriend (and, indirectly, Goodman himself) gained access to millions of dollars of money which has been deemed off limits to his creditors.
Here’s a link to the story: http://www.forbes.com/sites/trialandheirs/2012/02/06/can-florida-millionaire-justify-adopting-his-girlfriend/
Perhaps adult adoption may be increasingly relevant as an estate planning and asset protection tool.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128