Whether or not all "Ordinary Income" (interest, dividends, other comparable income - BUT not capital gains) must be distributed is dependent on the language and formation of the Trust. A simple determination would be if the Trust was formed and files as a "Simple Trust" or "Complex Trust."
In general, a Simple Trust must distribute all Ordinary Income and, except in its terminal year, cannot distribute capital gains.
A Complex Trust, depending on the language and terms of the Trust itself and the laws of the state in which is a resident, may choose to distribute ordinary, all or some, or retain ordinary income. Principal and Gain may also be included in the language and terms of the Trust document of a Complex Trust.
So read the Trust document and check the prior year Federal Form 1041 to see how the Trust is considered as Simple or Complex.
If this posted response is useful to you, please click on the upraised hand in the lower left of this post. Thank you. Scruffy Curmudgeon--PFFM/ IAFF, retired FireFighter/Paramedic - Locals 718/30, Veteran USAR O3 AIS/ASA '65-'67
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