It depends on the type of trust and how your Trust Agreement is written. Trusts are very complicated. Also, states have different rules on Trusts. So I am just relating very basic information about how trusts work. You should consult with an attorney or a professional tax advisor who has access to all of your information.
In general, with a trust the beneficiary of the trust will pay taxes on the distributions they receive from a trust's income. The trust doesn't pay the tax.
If no distributions of earnings were made during the year, the income generally remains taxable at the trust or estate level and the trust or estate is responsible for paying the tax due.
The beneficiaries aren't subject to taxes on distributions from the trust's principal, however. The principal is the original sum of money that was placed into the trust.
Click here for Instructions for Form 1041.
Click here for Estates and Trusts Questions and Answers.
Click here for Navigating Family Trusts and Taxes.
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