Opinion ID: 1197637
Heading Depth: 1
Heading Rank: 3

Heading: The facts relating to Ione ranch.

Text: 1934. According to a history of his farming career, as prepared by Leo Gorger in 1956, at the suggestion of his attorney, for use for the purposes of estate planning: In November, 1934, I was married to Ruth J. Adkins and we agreed to continue to farm and try to put up more improvements on the land with Ruth to have a one-half interest in everything I had or thereafter acquired, as a full partner, with deeds to be made for her one-half interest. All property thereafter contracted for was put in her name too. The formal partnership agreement was delayed until 1944, at which time she was deeded a one-half interest in the property I owned before marriage. The word `entireties' was inadvertently used in the deed.    On trial Leo Gorger testified that the last sentence was added at that time in 1956 at the suggestion of his attorney, Mr. James H. Raley of Pendleton (who died prior to the trial of this case) and that he was not then aware of the meaning of the term entireties. [2] 1944. A written partnership agreement, as prepared by a Hermiston attorney, was signed by Mr. and Mrs. Gorger and recited, among other things, that they were to remain partners in the business of farming and that: IT IS FURTHER AGREED AND UNDERSTOOD by and between the said Leo Gorger and Ruth J. Gorger that the said partnership hereto will create an estate by entirety of all the real property now owned or hereafter owned by either of the said partners, and that during the life of this partnership, the said partnership will conduct general farming operations in Morrow County, Oregon; and that each partner of this agreement shall own a fifty ( 50 ) percent interest in all of the properties now owned or hereafter acquired in the said partnership; and the profits, if any, made in the said partnership shall be divided on an equal basis. (Emphasis added) 1954. Leo and Ruth Gorger, having previously moved to the Pendleton ranch, leased the Ione ranch for operation to one John Proudfoot. 1955. Ruth Gorger executed a will on May 2, 1955, prepared by a Portland lawyer, in which she left most of her estate in the trust for her children which is now the subject of this case. 1956. Mr. and Mrs. Gorger consulted Mr. Raley, for the purpose of estate planning. For that purpose and at his suggestion the history of the farming operations was prepared. At that time titles to both the Ione ranch and the Pendleton ranch were held in estates by the entireties. The following things were then done, apparently upon the advice of Mr. Raley: (a) On December 21, 1956, a new partnership agreement was signed by Mr. and Mrs. Gorger. That agreement recited that they had been previously conducting business under the terms of the 1944 partnership agreement, a copy of which was attached, and that they desired to continue said partnership and change its name to Leo Gorger Ranches. The agreement went on to provide, among other things, that The capital of the partnership shall consist of the amount shown on the balance sheet of the partnership business as of January 1, 1957. The capital contributions of each partner shall consist of the capital invested by each partner as shown in said balance sheet. That balance sheet, and all subsequent partnership balance sheets prior to the death of Mrs. Gorger in 1961, listed both the Pendleton ranch and the Ione ranch as fixed assets of the partnership. (b) On December 27, 1956, a lease of the Ione ranch was executed by Leo and Ruth Gorger, as lessors, to Leo Gorger, as lessee until 1971. The purpose of the lease was to give him control of the ranch in anticipation of undertaking a gift program, as next described. (c) A gift program was then undertaken, under which deeds were executed by Leo and Ruth Gorger each year, beginning with deeds dated December 28, 1956, conveying to each of their five children an undivided fractional interest in the Ione ranch. 1959. By letter dated February 18, 1959 (unless actually written at a later date and predated, as apparently contended by plaintiffs and believed by the trial court), Mr. Raley wrote to Leo and Ruth Gorger as his clients, stating that: I have been going through the file with the intention of setting our theory forth as far as gift taxes are concerned. You have treated the partnership as an equal partnership over the years. Partnership laws and gift tax laws don't always exactly dovetail. Due to the use of the word `entireties' in the early partnership agreement and due to the fact that you held most of the Morrow County property by the entireties, we decided that we had to take the position that the land was held by the entireties and, therefore, Mrs. Gorger had a greater interest in each piece of land. The giving program was worked out on this basis. It seems to me, therefore, that the title to the land is not in the partnership, but is in Leo and Ruth as tenants by the entirety. They then leased the land apparently orally to the partnership known as `Leo Gorger Ranches' and formerly known as Ruth and Leo Gorger, Partners. Leo Gorger then subleases to Proudfoot or whoever he elects from time to time. It seems that the foregoing theory of ownership leasing and subleasing is the one that we will have to follow in connection with our gift tax program and the program of the land ownership.    Think this over and if it doesn't seem correct or logical, we will want to discuss it further and then make a further written memorial of it correcting this one if this one is incorrect in any aspect. (Emphasis added) Two days later, by letter dated February 20, 1959 (unless also written at a later date), Mr. Raley instructed their accountant, Mrs. Cosper, that the Ione ranch should be treated and considered as individually owned by Leo and Ruth Gorger, as tenants by the entireties, and as leased to the partnership, stating that: The Gorgers have asked me to send you the following information. The Morrow County property is owned by Ruth J. and Leo Gorger, as tenants by the entirety, excepting for such amounts thereof as have been given to their children by gift deeds. This property is all under lease to the partnership known as Leo Gorger Ranches. This lease ends September 1, 1971.   .    The gift tax divisions and the inheritance and estate tax divisions of the various taxing agencies will doubtless watch rather closely to see that the legal theories of ownership and tenancy are substantially followed in income tax reporting. While you have not had this information beforehand, you may desire to make some changes in the way you are reporting the income of the various persons and entities. (Emphasis added) Mrs. Cosper, however, continued to handle the partnership accounts on the same basis as in past years and to prepare balance sheets including both the Ione ranch and the Pendleton ranch as fixed assets. Five days later, on February 25, 1959, apparently as the written memorial of their intent to proceed upon the basis recommended by their attorney, Leo and Ruth Gorger executed a lease of the Ione ranch as the owners of the hereinafter described property as tenants by the entirety, to themselves as partners doing business as Leo Gorger Ranches, as the tenant. That lease also recited that this was a continuation of the same arrangement as originally agreed upon, including their original agreement that they would hold all real property as tenants by the entirety. This lease was predated so as to take effect as of December 27, 1956, the date when the gift program to the children was undertaken. That lease bears a certificate by the county clerk of Morrow County that it was received and filed of record on the 29th day of June, 1959 and was then duly recorded. On March 17, 1959, the tax returns for the annual gift deeds to the children of fractional interest in the Ione ranch not only noted that it was held by the entireties (as also in tax returns for previous gift deeds), but were more consistent with ownership by the entireties. Thus, the interest of each spouse was recited in terms of his or her respective life expectancy. Leo Gorger's interest was stated as .31693 at age 61 and Ruth Gorger's interest was stated as .68307 at age 46. The tax returns for previous gift deeds had stated that the gifts were considered as having been made one-half by each. This new practice was also followed in the tax returns for gift deeds for subsequent years. 1960. The partnership financial statements for 1960, however, as prepared by Mrs. Cosper, continued to list the Ione ranch, as well as the Pendleton ranch, as a fixed asset, subject to depreciation on partnership tax returns. 1961. Ruth Gorger died on August 21, 1961. The probate of her estate was then commenced by Leo Gorger, as executor of her will. The inventory filed in that estate did not list the Ione ranch as an asset of the estate, but included the Pendleton ranch which was also held under an entirety deed. An inventory for inheritance tax purposes listed the Ione ranch as survivorship property passing to Leo Gorger. The balance sheet for the partnership, as of December 31, 1961, also did not include the Ione ranch as a fixed asset. Leo Gorger testified that he left to his attorney, Mr. Raley, the decision whether the Ione ranch should go into the estate as an asset of the estate or be considered as entirety property. 1962. Leo Gorger executed further gift deeds of fractional undivided interests in the Ione ranch to his children for the years 1962 and 1963. 1966. Leo Gorger, having been remarried, executed a deed, joined in by his wife Edna, conveying to the trust an undivided one-half interest in the Pendleton ranch. [3]