What is considered income and a distribution for a third party supplemental needs trust

[Steve184]

I am filling out a trust return for the first time since my appointment as the trustee for a third party supplemental needs trust in February 2019. I received two  1099 div/interest forms which I entered - included dividends paid to trust and capital gains information only. I assume all of this is considered "income" for the trust? Separately the software asked about distributions and whether the entire Income was spent on the distributions. More funds were spent on the supplemental needs that what the system recorded as income. Do I just say 100% of income provided to beneficiary? I assume when I pay for needs, such as insurance, and not pay her directly, this is included as income?  Sorry, very new to this.

[Anonymous_]

You have to read the trust document but, typically, distributions carry through income that is taxable to the beneficiary. However, capital gains typically remain with the trust (and the trust is liable for taxes thereon). Nevertheless, the trust instrument could very well give you the discretion to distribute whatever type of income/gain is necessary and even invade the corpus.

Since you mentioned you are new to this, you should absolutely seek professional tax and/or legal guidance and even income tax preparation. The rationale behind that suggestion is you have a fiduciary responsibility to the beneficiary and can be held liable for any errors on your part; you want to be able to show that you acted reasonably and engaged professionals in instances where you do not have the requisite knowledge to act in a competent manner.