1. You're not taxed on unrealized gains......only when something is sold for more than what was paid for it do you have a taxable gain.
2. The trust tax rates don't apply to your trust if all of the income and capital gains get distributed to you. Then, you pay tax on your 1040 from your part of the income and gain.
3. Income is a general term. Capital gains are taxed differently......at a lower rate.......than ordinary income like interest from a savings account. Capital gain happens when you sell a capital asset for more you paid for it.
4. The Net Investment Income Tax applies to trusts the same as individuals.
5. Trusts don't have "earned income" if they only invest in assets like stocks and bonds and mutual funds and deposit money in savings accounts or CDs.
6. In your example, if your brother leaves the $20,000 unrealized gains alone and neither sells it to realize the capital gains or otherwise then neither the trust nor you pay tax on it.
7. If the trust has capital gains and distributes it to you, that's still capital gain. The character of the income doesn't change when distributed from the trust to you.
