Opinion ID: 1197637
Heading Depth: 1
Heading Rank: 5

Heading: Depreciation of assets.

Text: The decree of the trial court provided that defendant Leo Gorger pay and distribute to the trust the sum of $61,287.51, to be paid from funds of the partnershp as undistributed income arising from accounting depreciation from assets. Defendants contend that this was error because: (1) it was conceded by plaintiffs that it is the practice of accountants for partnerships not to distribute depreciation as income; and (2) plaintiffs have chosen to acquiesce in the continuation of the partnership business (rather than to demand its liquidation as of the death of Ruth Gorger) and have accepted the benefits of its continuance, including distribution of substantial profits. Plaintiffs respond with the contention that their waiver was limited to the continuance of the [partnership] business and not to determination of distributable income arising during the term of the trust    and that [w]hile it is the practice of accountants in partnerships not to distribute depreciation as income, the rule is otherwise in the case of trusts. It may be the rule that if a trust is engaged in the operation of a business, all income must be distributed to its income beneficiaries, without deductions for a reserve depreciation of assets for the benefit of the remaindermen. In this case, however, the trust, as a trust, has not been engaged in the operation of a business. Instead, the trust (which includes the assets of the estate of Ruth Gorger) has been at least a de facto partner with Leo Gorger as the continued operator of Leo Gorger Ranches, the former partnership of Leo and Ruth Gorger. Leo Gorger simply continued the partnership business as in past years, substituting the trust as a partner for his deceased wife. Under these circumstances, we believe that when plaintiffs made the decision to agree to the continuation of that partnership business (instead of demanding its liquidation as of the death of Ruth Gorger) and to accept the benefits, including profits, from its continued operation, it follows that the accounting practices relating to the depreciation of its assets are to be controlled by the usual and accepted accounting practices for the operation of a partnership. Although not directly in point, the problem in this case has some similarity with that involved in Ryan v. Plath, 20 Wash.2d 663, 148 P.2d 946, 950 (1944), in which it was held that: In our opinion, appellant    should not be allowed to ratify this transaction in part and avoid it in part. What appellant is in effect attempting to do    is to accept the benefits of the transaction    and is claiming a technical breach of trust   . We also believe that this result is in accord with the intent of Ruth Gorger, as expressed by the trust provisions of her will. These provisions conferred broad powers and discretion upon Leo Gorger. [6] According to the testimony, one of the primary purposes of these broad provisions was to build as much control as possible into the trust so as to enable Leo Gorger to preserve the trust assets for the protection of the interests of the children, according to his best judgment. In this case, the children, including plaintiffs, are not only the income beneficiaries of the trust, but also the remaindermen. Thus, the effect of the reserve for depreciation of assets has been to postpone the distribution of such assets to the same beneficiaries. As stated by the trial court, there is in this case no charge of diminution of trust corpus or material losses to [its] assets. For these reasons, we hold that it was error for the trial court to order Leo Gorger to distribute $61,287.51 to the children from the funds of the partnership as undistributed income from depreciation of assets.