Legal Question in Wills and Trusts in California

The Trust is an independent tax paying entity that has its own filing requirements. The issue of taxation between the trust and the beneficiary is dependent on the terms of the trust.

If the trust requires a distribution of income, then the trust takes a deduction for what it distributes, or could have distributed, called distributable net income (DNI).

You should be aware that the bracketing for a trust brings the highest tax bracket to bear much more quickly than to an individual, whether married or single. Therefore, it is usually less expensive to the "family" as a whole (including the trust) to distribute and use the DNI and allow the individual beneficiaries to pay the tax on the DNI.

On the other hand, if the income is not required to be distributed, then the Trust will pay the tax on what the income is to the trust and can only deduct as DNI that which is actually paid out to a beneficiary. If income is accumulated and paid out later, then principal is generally received by the beneficiary and while there may be some DNI that flows out with payments to a beneficiary, the K-1 will only reflect a portion of what is received as taxable.

Depends on the type of income, the terms of the trust, potential differences in Federal and State law and the timing of distributions as related to the taxable year of the trust and the beneficiary. More facts are needed to provide an answer. You need to contact an effective accountant or attorney. Perhaps the accountant who helps you file your own returns?