diff --git a/packages/core/src/components/EventBus/core-events/SelectionChangedCoreEvent.ts b/packages/core/src/components/EventBus/core-events/SelectionChangedCoreEvent.ts
index 80c49519..cd29d849 100644
--- a/packages/core/src/components/EventBus/core-events/SelectionChangedCoreEvent.ts
+++ b/packages/core/src/components/EventBus/core-events/SelectionChangedCoreEvent.ts
@@ -1,7 +1,7 @@
 import type { InlineTool } from '@editorjs/sdk';
 import { CoreEventBase } from './CoreEventBase.js';
 import { CoreEventType } from './CoreEventType.js';
-import type { Index, InlineToolName } from '@editorjs/model';
+import type { Index, InlineFragment, InlineToolName } from '@editorjs/model';
 
 /**
  * Payload of SelectionChangedCoreEvent custom event
@@ -17,6 +17,11 @@ export interface SelectionChangedCoreEventPayload {
    * Inline tools available for the current selection
    */
   readonly availableInlineTools: Map<InlineToolName, InlineTool>;
+
+  /**
+   * Inline fragments available for the current selection
+   */
+  readonly fragments: InlineFragment[];
 }
 
 /**
diff --git a/packages/core/src/components/SelectionManager.ts b/packages/core/src/components/SelectionManager.ts
index 3c2cbed7..be92c9b6 100644
--- a/packages/core/src/components/SelectionManager.ts
+++ b/packages/core/src/components/SelectionManager.ts
@@ -1,6 +1,6 @@
 import 'reflect-metadata';
 import { FormattingAdapter } from '@editorjs/dom-adapters';
-import type { CaretManagerEvents, InlineToolName } from '@editorjs/model';
+import type { CaretManagerEvents, InlineFragment, InlineToolName } from '@editorjs/model';
 import { CaretManagerCaretUpdatedEvent, Index, EditorJSModel, createInlineToolData, createInlineToolName } from '@editorjs/model';
 import { EventType } from '@editorjs/model';
 import { Service } from 'typedi';
@@ -73,15 +73,26 @@ export class SelectionManager {
    */
   #handleCaretManagerUpdate(event: CaretManagerEvents): void {
     switch (true) {
-      case event instanceof CaretManagerCaretUpdatedEvent:
+      case event instanceof CaretManagerCaretUpdatedEvent: {
+        const { index: serializedIndex } = event.detail;
+        const index = serializedIndex !== null ? Index.parse(serializedIndex) : null;
+        let fragments: InlineFragment[] = [];
+
+        if (index !== null && index.blockIndex !== undefined && index.dataKey !== undefined && index.textRange !== undefined) {
+          fragments = this.#model.getFragments(index.blockIndex, index.dataKey, ...index.textRange);
+        }
+
         this.#eventBus.dispatchEvent(new SelectionChangedCoreEvent({
-          index: event.detail.index !== null ? Index.parse(event.detail.index) : null,
+          index,
           /**
            * @todo implement filter by current BlockTool configuration
            */
           availableInlineTools: this.#inlineTools,
+          fragments,
         }));
+
         break;
+      }
       default:
         break;
     }
diff --git a/packages/core/src/ui/InlineToolbar/index.ts b/packages/core/src/ui/InlineToolbar/index.ts
index cc0377f2..c4e84876 100644
--- a/packages/core/src/ui/InlineToolbar/index.ts
+++ b/packages/core/src/ui/InlineToolbar/index.ts
@@ -6,7 +6,7 @@ import { InlineToolbarRenderedUIEvent } from './InlineToolbarRenderedUIEvent.js'
 import { CoreEventType, EventBus, SelectionChangedCoreEvent } from '../../components/EventBus/index.js';
 import { EditorAPI } from '../../api/index.js';
 import { InlineTool, InlineToolFormatData } from '@editorjs/sdk';
-import { InlineToolName } from '@editorjs/model';
+import { InlineFragment, InlineToolName, TextRange } from '@editorjs/model';
 import { CoreConfigValidated } from '../../entities/index.js';
 
 /**
@@ -56,7 +56,7 @@ export class InlineToolbarUI {
    * @param event - SelectionChangedCoreEvent event
    */
   #handleSelectionChange(event: SelectionChangedCoreEvent): void {
-    const { availableInlineTools, index } = event.detail;
+    const { availableInlineTools, index, fragments } = event.detail;
     const selection = window.getSelection();
 
     if (
@@ -75,7 +75,7 @@ export class InlineToolbarUI {
       return;
     }
 
-    this.#updateToolsList(availableInlineTools);
+    this.#updateToolsList(availableInlineTools, index.textRange, fragments);
     this.#move();
     this.#show();
   }
@@ -129,8 +129,7 @@ export class InlineToolbarUI {
 
     const rect = range.getBoundingClientRect();
 
-    // eslint-disable-next-line @typescript-eslint/no-magic-numbers
-    this.#nodes.holder.style.top = `${rect.top + 16}px`;
+    this.#nodes.holder.style.top = `${rect.top}px`;
     this.#nodes.holder.style.left = `${rect.left}px`;
     this.#nodes.holder.style.zIndex = '1000';
   }
@@ -138,8 +137,10 @@ export class InlineToolbarUI {
   /**
    * Renders the list of available inline tools in the Inline Toolbar
    * @param tools - Inline Tools available for the current selection
+   * @param textRange - current selection text range
+   * @param fragments - inline fragments for the current selection
    */
-  #updateToolsList(tools: Map<InlineToolName, InlineTool>): void {
+  #updateToolsList(tools: Map<InlineToolName, InlineTool>, textRange: TextRange, fragments: InlineFragment[]): void {
     this.#nodes.buttons.innerHTML = '';
 
     Array.from(tools.entries()).forEach(([name, tool]) => {
@@ -147,6 +148,12 @@ export class InlineToolbarUI {
 
       button.textContent = name;
 
+      const isActive = tool.isActive(textRange, fragments.filter((fragment: InlineFragment) => fragment.tool === name));
+
+      if (isActive) {
+        button.style.fontWeight = 'bold';
+      }
+
       if (Object.hasOwnProperty.call(tool.constructor.prototype, 'renderActions')) {
         button.addEventListener('click', () => {
           this.#renderToolActions(name, tool);
diff --git a/packages/dom-adapters/src/BlockToolAdapter/index.ts b/packages/dom-adapters/src/BlockToolAdapter/index.ts
index 40b1c0bf..79d7dd5d 100644
--- a/packages/dom-adapters/src/BlockToolAdapter/index.ts
+++ b/packages/dom-adapters/src/BlockToolAdapter/index.ts
@@ -101,10 +101,8 @@ export class BlockToolAdapter implements BlockToolAdapterInterface {
 
       input.textContent = value;
 
-      const nodeToFormat = input.firstChild as HTMLElement; // we just set textContent, so it's always a TextNode
-
       fragments.forEach(fragment => {
-        this.#formattingAdapter.formatElementContent(nodeToFormat, fragment);
+        this.#formattingAdapter.formatElementContent(input, fragment);
       });
     } catch (_) {
       // do nothing — TextNode is not created yet as there is no initial data in the model
diff --git a/packages/dom-adapters/src/CaretAdapter/index.ts b/packages/dom-adapters/src/CaretAdapter/index.ts
index 3d77873c..327694e6 100644
--- a/packages/dom-adapters/src/CaretAdapter/index.ts
+++ b/packages/dom-adapters/src/CaretAdapter/index.ts
@@ -82,10 +82,36 @@ export class CaretAdapter extends EventTarget {
    *
    * @param index - new caret index
    */
-  public updateIndex(index: Index): void {
+  public updateIndex(index: Index | null): void {
     this.#userCaret.update(index);
   }
 
+  /**
+   * Finds input by index
+   *
+   * @param index - index of the input in the model tree
+   */
+  public getInput(index?: Index): HTMLElement | undefined {
+    const builder = new IndexBuilder();
+
+
+    if (index !== undefined) {
+      builder.from(index);
+    } else if (this.#userCaret.index !== null) {
+      builder.from(this.#userCaret.index);
+    } else {
+      throw new Error('[CaretManager] No index provided and no user caret index found');
+    }
+
+    /**
+     * Inputs are stored in the hashmap with serialized index as a key
+     * Those keys are serialized without text range to cover the whole input, so we need to remove it here to find the input
+     */
+    builder.addTextRange(undefined);
+
+    return this.#inputs.get(builder.build().serialize());
+  }
+
   /**
    * Selection change handler
    *
@@ -93,6 +119,8 @@ export class CaretAdapter extends EventTarget {
    */
   #onSelectionChange(selection: Selection | null): void {
     if (!selection) {
+      this.updateIndex(null);
+
       return;
     }
 
@@ -176,15 +204,7 @@ export class CaretAdapter extends EventTarget {
       return;
     }
 
-    const builder = new IndexBuilder();
-
-    /**
-     * Inputs are stored in the hashmap with serialized index as a key
-     * Those keys are serialized without text range to cover the whole input, so we need to remove it here to find the input
-     */
-    builder.from(index).addTextRange(undefined);
-
-    const input = this.#inputs.get(builder.build().serialize());
+    const input = this.getInput(index);
 
     if (!input) {
       return;
diff --git a/packages/dom-adapters/src/FormattingAdapter/index.ts b/packages/dom-adapters/src/FormattingAdapter/index.ts
index c3a72c1f..b2e92985 100644
--- a/packages/dom-adapters/src/FormattingAdapter/index.ts
+++ b/packages/dom-adapters/src/FormattingAdapter/index.ts
@@ -50,35 +50,6 @@ export class FormattingAdapter {
     this.#model.addEventListener(EventType.Changed, (event: ModelEvents) => this.#handleModelUpdates(event));
   }
 
-  /**
-   * @todo move event handling to BlockToolAdapter
-   * Handles text format and unformat model events
-   *
-   * @param event - model change event
-   */
-  #handleModelUpdates(event: ModelEvents): void {
-    if (event instanceof TextFormattedEvent) {
-      const tool = this.#tools.get(event.detail.data.tool);
-
-      if (tool === undefined) {
-        return;
-      }
-
-      const selection = window.getSelection();
-
-      /**
-       * Render inline tool for current range
-       */
-      if (selection) {
-        const range = selection.getRangeAt(0);
-
-        const inlineElement = tool.createWrapper(event.detail.data.data);
-
-        surround(range, inlineElement);
-      }
-    }
-  }
-
   /**
    * Allows to render formatting inside a passed input
    *
@@ -91,28 +62,18 @@ export class FormattingAdapter {
   public formatElementContent(input: HTMLElement, inlineFragment: InlineFragment): void {
     const toolName = inlineFragment.tool;
     const toolData = inlineFragment.data;
-    const index = inlineFragment.range;
+    const textRange = inlineFragment.range;
 
     const tool = this.#tools.get(toolName);
 
     if (tool === undefined) {
       throw new Error(`FormattingAdapter: tool ${toolName} is not attached`);
-    }
-
-    const [start, end] = index;
+    };
 
     try {
-      /**
-       * Create range with positions specified in index
-       */
-      const range = document.createRange();
-
-      range.setStart(input, start);
-      range.setEnd(input, end);
-
       const inlineElement = tool.createWrapper(toolData);
 
-      surround(range, inlineElement);
+      surround(inlineElement, input, textRange);
     } catch (e) {
       console.error('Error while formatting element content', e);
     }
@@ -186,4 +147,33 @@ export class FormattingAdapter {
         break;
     }
   }
+
+
+  /**
+   * Handles text format and unformat model events
+   *
+   * @param event - model change event
+   */
+  #handleModelUpdates(event: ModelEvents): void {
+    if (event instanceof TextFormattedEvent) {
+      const tool = this.#tools.get(event.detail.data.tool);
+      const { textRange } = event.detail.index;
+
+      if (tool === undefined || textRange === undefined) {
+        return;
+      }
+
+      const input = this.#caretAdapter.getInput(event.detail.index);
+
+      if (input === undefined) {
+        console.warn('No input found for the index', event.detail.index);
+
+        return;
+      }
+
+      const inlineElement = tool.createWrapper(event.detail.data.data);
+
+      surround(inlineElement, input, textRange);
+    }
+  }
 }
diff --git a/packages/dom-adapters/src/utils/surround.ts b/packages/dom-adapters/src/utils/surround.ts
index 9dfc54b2..e295ab16 100644
--- a/packages/dom-adapters/src/utils/surround.ts
+++ b/packages/dom-adapters/src/utils/surround.ts
@@ -1,18 +1,25 @@
+import type { TextRange } from '@editorjs/model';
+import { getBoundaryPointByAbsoluteOffset } from './getRelativeIndex.js';
+
 /**
  * Function, that surrounds passed range with passed html element
  *
- * @param range - range to be surrounded
- * @param wrapper - wrapper to surround the range
+ * @param wrapper - element to surround the range
+ * @param inputElement - element, where the range is located
+ * @param textRange - range to be surrounded
  */
-export function surround(range: Range, wrapper: HTMLElement): void {
-  const inlineElement = wrapper;
+export function surround(wrapper: HTMLElement, inputElement: HTMLElement, textRange: TextRange): void {
+  const range = document.createRange();
+
+  range.setStart(...getBoundaryPointByAbsoluteOffset(inputElement, textRange[0]));
+  range.setEnd(...getBoundaryPointByAbsoluteOffset(inputElement, textRange[1]));
 
   const extracted = range.extractContents();
 
   /**
    * Insert contents from range to new inline element and put created element in range
    */
-  inlineElement.appendChild(extracted);
+  wrapper.appendChild(extracted);
 
-  range.insertNode(inlineElement);
+  range.insertNode(wrapper);
 }
diff --git a/packages/dom-adapters/src/utils/useSelectionChange.ts b/packages/dom-adapters/src/utils/useSelectionChange.ts
index d0a8fdc7..1fd3286c 100644
--- a/packages/dom-adapters/src/utils/useSelectionChange.ts
+++ b/packages/dom-adapters/src/utils/useSelectionChange.ts
@@ -31,6 +31,12 @@ export type InputWithCaret = HTMLElement;
  * Utility composable that watches for document "selection change" event and delegates the provided callbacks to subscribers.
  */
 export const useSelectionChange = createSingleton(() => {
+  /**
+   * Stores the last input that was related to the selection.
+   * We need that to send update when selection is moved to another input.
+   */
+  let lastRelatedInput: HTMLElement | null  = null;
+
   /**
    * Used to iterate over all inputs and check if selection is related to them.
    */
@@ -72,9 +78,28 @@ export const useSelectionChange = createSingleton(() => {
     inputsWatched.forEach((input) => {
       const subscriber = subscribers.get(input);
 
+      let isRelatedInputFound = false;
+
       if (subscriber && isSelectionRelatedToInput(selection, input)) {
+        lastRelatedInput = input;
+        isRelatedInputFound = true;
+
         subscriber.callback.call(subscriber.context, selection);
       }
+
+      /**
+       * If no related input found or input is changed, we need to notify subscriber selection is out of it's input
+       */
+      if (!isRelatedInputFound || input !== lastRelatedInput) {
+        subscriber?.callback.call(subscriber.context, null);
+      }
+
+      /**
+       * If no related input found, we need to reset last related input
+       */
+      if (!isRelatedInputFound) {
+        lastRelatedInput = null;
+      }
     });
   }
 
diff --git a/packages/model/src/CaretManagement/Caret/Caret.ts b/packages/model/src/CaretManagement/Caret/Caret.ts
index b8a47824..fa6b8dd7 100644
--- a/packages/model/src/CaretManagement/Caret/Caret.ts
+++ b/packages/model/src/CaretManagement/Caret/Caret.ts
@@ -70,7 +70,7 @@ export class Caret extends EventBus {
    *
    * @param index - new caret index
    */
-  public update(index: Index): void {
+  public update(index: Index | null): void {
     this.#index = index;
 
     this.dispatchEvent(new CaretUpdatedEvent(this));
@@ -82,7 +82,7 @@ export class Caret extends EventBus {
   public toJSON(): CaretSerialized {
     return {
       id: this.id,
-      index: this.index?.serialize(),
+      index: this.index !== null ? this.index.serialize() : null,
     } as CaretSerialized;
   }
 }
diff --git a/packages/model/src/CaretManagement/CaretManager.spec.ts b/packages/model/src/CaretManagement/CaretManager.spec.ts
index b9a603cf..3d0636f3 100644
--- a/packages/model/src/CaretManagement/CaretManager.spec.ts
+++ b/packages/model/src/CaretManagement/CaretManager.spec.ts
@@ -97,6 +97,7 @@ describe('CaretManager', () => {
     expect(handler).toHaveBeenCalledWith(expect.objectContaining({
       detail: {
         id: caret.id,
+        index: null,
       },
     }));
   });
diff --git a/packages/model/src/entities/inline-fragments/mixins/ParentNode/index.ts b/packages/model/src/entities/inline-fragments/mixins/ParentNode/index.ts
index 60b6777f..a8b4430b 100644
--- a/packages/model/src/entities/inline-fragments/mixins/ParentNode/index.ts
+++ b/packages/model/src/entities/inline-fragments/mixins/ParentNode/index.ts
@@ -137,6 +137,11 @@ export function ParentNode<C extends { new(...args: any[]): InlineNode }>(constr
      * @param children - children nodes to insert
      */
     public insertAfter(target: ChildNode, ...children: ChildNode[]): void {
+      /**
+       * We need to get the index first before any manipulations with children array
+       */
+      const targetIndex = this.children.indexOf(target);
+
       /**
        * Append children to the parent to set their parent property
        */
@@ -154,9 +159,7 @@ export function ParentNode<C extends { new(...args: any[]): InlineNode }>(constr
       /**
        * Insert added children to correct places
        */
-      const index = this.children.indexOf(target);
-
-      this.children.splice(index + 1, 0, ...children);
+      this.children.splice(targetIndex + 1, 0, ...children);
     }
 
 
diff --git a/packages/model/src/entities/inline-fragments/specs/ParentNode.spec.ts b/packages/model/src/entities/inline-fragments/specs/ParentNode.spec.ts
index 23177423..a296f040 100644
--- a/packages/model/src/entities/inline-fragments/specs/ParentNode.spec.ts
+++ b/packages/model/src/entities/inline-fragments/specs/ParentNode.spec.ts
@@ -182,6 +182,19 @@ describe('ParentNode mixin', () => {
 
       expect(dummy.children).toEqual([childMock, anotherChildMock, childMockToInsert]);
     });
+
+    it('should correctly insert children when it contains the target child', () => {
+      const childMock = new ChildDummy();
+      const anotherChildMock = new ChildDummy();
+      const childMockToInsert = new ChildDummy();
+      const anotherChildMockToInsert = new ChildDummy();
+
+      dummy.append(childMock, childMockToInsert, anotherChildMock);
+
+      dummy.insertAfter(childMockToInsert, anotherChildMockToInsert, childMockToInsert);
+
+      expect(dummy.children).toEqual([childMock, anotherChildMock, anotherChildMockToInsert, childMockToInsert]);
+    });
   });
 
   describe('.removeChild()', () => {
diff --git a/packages/playground/src/App.vue b/packages/playground/src/App.vue
index 1f12564d..3f2a12ef 100644
--- a/packages/playground/src/App.vue
+++ b/packages/playground/src/App.vue
@@ -132,6 +132,8 @@ onMounted(() => {
   background-color: #111;
   border-radius: 8px;
   padding: 10px;
+
+  font-size: 2em;
 }
 
 .sectionHeading {