Provide Schedule K-1s to any beneficiaries of a trust who receive distributions. If your wife’s sisters are beneficiaries then your wife should be sending them K-1s.
If your wife is the sole beneficiary and is gifting the money to her sisters—and reporting all the beneficiaries share of income on her tax return—then no K-1 is necessary.
A trust does file its own tax return. However, it is a so-called “pass-through” entity. The trust does not pay tax on the income it passes through to beneficiaries. The beneficiaries pay tax on their share, according to the proportion of the distributions. That proportion is reported on Schedule K-1.
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