Although the estate may be technically insolvent with respect to having no assets or liabilities, that is not a defense to treat the cancellation of debt income as forgiven, since there were distributions to beneficiaries that could have been used to pay the taxes due. The best thing to do is complete a trust tax return for 2021 and report the cancellation of debt income, and have the beneficiaries chip in to pay the taxes due.
@hadleykris
[Edited 1/24/22 at 4:54 PST]
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