The Form 1099-R is correct. The trust (you as trustee of the trust) must file Form 1041 to report the income to the trust. This filing include a Schedule K-1 for each beneficiary, a copy of which must be provided to the respective beneficiary, passing the beneficiary's share of the income through to the beneficiary for inclusion on the beneficiary's tax return. The trust will then take a deduction for this Distributable Net Income, eliminating this income from the taxable income of the trust.
The TurboTax product for preparing Form 1041 is TurboTax Business for Windows (not TurboTax Home & Business which is for Form 1040).
