@nancysmall60 wrote:
Thank you very much. This is much harder than I thought it would be.
It always is harder than anyone thinks it would be, which is the reason you will see quite a few recommendations for trustees to engage the services of a tax and/or legal professional.
If trust assets (cash or property) have been distributed to three people, the presumably those people are beneficiaries; a trustee cannot simply distribute trust funds to anyone unless authorized by the trust document (which is where you will find the beneficiaries listed). The basic rule is "no beneficiary = no valid trust" since you need at least a grantor, a trustee, and a beneficiary.
A K-1 that is generated by a 1041 and issued to the beneficiary(ies) of a trust lists shares of items of income, gain, deductions, credits, but not distributions of the corpus (principal) of the trust. If the income is recognized and reported on the trust return (Form 1041) and the trust assumes the tax liability, there should be no need for K-1s to be issued. Note, however, that distributions from the trust to the beneficiary(ies) carry with them DNI (distributable net income) so, generally, a beneficiary would be responsible for reporting the income, gain, et al, from the K-1 on that beneficiary's individual income tax return (and assuming the concomitant tax liability).
