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§ 8.7 REMAINDER INTERESTSmodified a 1978 pronouncement. 201 This alteration of position was prompted bycourt opinions. 202For example, consider the situation in which someone dies, leaving a charitablebequest in the form of a gift to a trust, with income payable to an individualand the remainder interest to a charitable organization. The trust fails toqualify as a charitable remainder trust or pooled income fund, so there is noestate tax charitable deduction. There is a will contest, resulting in a settlement,pursuant to which the estate makes a single payment to the income beneficiaryand a distribution to the charitable organization. The IRS’s original position inthis regard was that no estate tax charitable deduction is available in these circumstancesbecause the accelerated payment to the charity under the settlementis, in effect, a postmortem modification of a will that did not satisfy the statutoryrequirements. 203 The courts held, however, that these requirements are notapplicable, on the ground that the settlements do not create split interests; theinterests passing to the charitable and noncharitable beneficiaries are not interestsin the same property. Despite this change in position, the IRS warned that“settlements of will contests will continue to be scrutinized in order to assurethat the settlement in question is not an attempt to circumvent . . . [the rulerequiring split interests to be in certain forms] by instituting and settling a collusivecontest.” 204A court may be called on to give effect to a settlement of the obligations ofan estate reached for nontax reasons, and to determine the amount of an estatetax charitable contribution deduction in relation to the way in which the estate’sadministrative expenses were allocated. A 1993 court case illustrates thispoint. 205The estate involved in the case had a value of approximately $28 million, thebulk of which was in two equal charitable lead trusts. Two charitable organizationswere the income interest beneficiaries; they were each to receive an 8.5 percentannual annuity for 20 years. The annuity amount was specified as thatpercentage of the “initial net fair market value of the assets constituting thetrust.” At the end of the income payment period, the assets of these trusts wereto be distributed to the children and grandchildren of the decedent. When thewill was admitted to probate in 1983, the estate attracted 16 lawsuits. In addition,several of the businesses that constituted a substantial part of the estatewere reorganized. By the close of 1989, the administrative expenses of the estatewere more than $9 million ($2 million from estate principal). Because of thelength of the probate period, the estate received substantial income from itsassets (postmortem income). The will provided that all of the debts and expensesof the estate were to be paid out of the residuary estate. The residuary estate wasdefined to be the entire estate after the satisfaction of gifts and payment ofexpenses.201 Rev. Rul. 78-152, 1978-1 C.B. 296.202 See, e.g., Flanagan v. United States, 810 F.2d 930 (10th Cir. 1987); Strock Estate v. United States, 655 F. Supp.1334 (W.D. Pa. 1987). See also Burdick Estate v. Commissioner, 979 F.2d 1369 (9th Cir. 1992).203 IRC § 2055(e)(2)(A).204 Rev. Rul. 89-31, 1989-1 C.B. 277, 278.205 Warren Estate v. Commissioner, 981 F.2d 776 (5th Cir. 1993). 257