@mseklem - no - it is not taxable. - in my example, any distribution that exceeds the $10,000 of income is a distribution of principle of the trust; principle is not taxable.
let's make the example even simpler: the trust has no income for the year but the beneficiary requests that $10,000 be sent from the trust to the beneficiary to cover health (medical) expenses under the HEMS standard.
the trust has no income to distribute, so it has to be principle that it is distributed. Tax is paid on 'income' - not 'principle'. 🙂
