the executor/trustee usually has discretion as to whether to report income at the trust level and have the trust pay the taxes on it. then the remaining assets - usually cash are distributed tax- free to the beneficiaries. the same person can decide to distribute the income (either pursuant to the trust document or as permitted by state law) to the beneficiaries. the trust reports the income but also reports it was distributed to the beneficiaries via k-1s. then the beneficiaries get more cash but report the income on their personal returns and thus they owe the taxes.
an estate gets a step-up in basis to Fair Market Value on date of death. lets say the property was sold for $514 FMV was $509. taxable gain on sale $5. trustee/executor decides the taxes will be paid at the trust level. taxes say $2 . the $514 cash from sale less the $2 taxes leaves the estate with $512 split 50/50 that's $256 each. and there is nothing for you to report
