I have been paying all the taxes for interest and capital gains on a grantor trust I hold for my sibling each year to the IRS. When my sibling passes the trust will be distributed to my siblings adult children. When distributions start, after I have paid the taxes each year, from this trust to the beneficiaries do they need to report the distribution amount to the IRS? If they would need to report the amount which IRS form would they use. Or would I need to report the amount to the IRS using a form.
I know the typical breakdown regarding distributions of principal no taxes are paid and interest and capital gains taxes are paid by the beneficiary for a typical trust distribution. Just could not find anything about a trust where the taxes are paid each tax year before distributions are sent to the beneficiaries.
Assuming this is not a grantor trust, then you, as trustee (?), would prepare and file Form 1041 for the trust.
Distributions of corpus (principal) made after taxes are paid would not be taxable to the beneficiaries and they would not need to report the distribution.