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§ 8.7 REMAINDER INTERESTSand the decedent’s children and grandchildren was nearly $12 million.) Thus,the charitable deduction for this estate was to be calculated on the basis of whatthe charities would receive. 211(c) ReformationsTo qualify for the charitable deduction for a remainder interest, certain provisionsmust be included in a charitable remainder trust. 212 These requirementsapply with respect to the income, estate, and gift tax charitable deductions.There is a procedure, however, by which these trusts—both those created duringlifetime and testamentary trusts—can be adjusted to bring them into compliancewith the appropriate tax law requirements, for income tax, 213 estate tax, 214 andgift tax 215 consequences. Federal law permits a charitable deduction for a qualifiedreformation of a trust, when the trust does not meet the requirements of acharitable remainder annuity trust or a charitable remainder unitrust, for purposesof qualifying for the estate tax charitable deduction. 216 The IRS issues rulingsfrom time to time as to the qualified reformation of remainder trusts underthese rules; 217 occasionally the agency rules that the reformation is not a qualifiedone. 218 The qualified reformation procedure requires that the interest be areformable interest that can be changed (such as by amendment or construction)into a qualified interest. 219 Also, for the reformation to be effective:• Any difference between the actuarial value (determined as of the date ofthe decedent’s death) of the qualified interest and the actuarial value (asso determined) of the reformable interest may not exceed 5 percent of theactuarial value (as so determined) of the reformable interest 220• In the case of a charitable remainder interest, the nonremainder interest(before and after the qualified reformation) must terminate at the sametime 221211 The outcome in this case appears to be identical to the position taken by the IRS in Rev. Rul. 89-31, 1989-1C.B. 277. A court ruled that the amount of an estate’s charitable contribution deduction is the amount that actuallypassed to charity in accordance with a settlement agreement; it is not limited to the amounts that wouldhave been distributed to charity under the will and its codicils. Hubert Estate v. Commissioner, 101 T.C. 314(1993). The court also held that the charitable deduction must be reduced by the portion of administrative expensesallocated to principal (and not to income) and that the charitable deduction is not to be reduced by anyimputed income (though it may be reduced by any appropriate charges to principal). A dissent in the casemused about whether “a settlement agreement can transform a nonqualifying interest into a qualifying interest,”but concluded that the best course of action would have been to accept the IRS’s concession in the casethat the split-interest rules (IRC § 2055(e)) did not bar the estate tax charitable contribution deduction “andleave that question for another day.” Hubert, 101 T.C. at 339. See § 8.3(b)(iii).212 See § 12.7.213 IRC § 170(f)(7).214 IRC § 2055(e)(3).215 IRC § 2522(c)(4).216 IRC § 2055(e)(3)(A).217 See, e.g., Priv. Ltr. Rul. 8605003.218 See, e.g., Priv. Ltr. Rul. 9327006.219 IRC § 2055(e)(3)(B).220 IRC § 2055(e)(3)(B)(i).221 IRC § 2055(e)(3)(B)(ii)(I). 259