What are the general income tax rules for trusts?
Generally, income is taxable to trust entity or trust beneficiaries Trust income retained by the trust is taxed to the trust, while distributed income is taxed to the beneficiary who receives it. Thus, trust income is taxable to the trust or to the beneficiary but not to both. This result is obtained though the use of the distributable net income (DNI) concept. Except grantor-type trusts or charitable remainder trusts There are two exceptions to the general rule. First, if the grantor has retained an interest in the trust (e.g., right of revocation) or if some other person is given a general power of appointment over the trust income or principal, trust income is taxable to the grantor or powerholder. These are known as grantor-type trusts–an example is the revocable trust where all income is taxed to the grantor. Second, if the trust is a charitable remainder trust because the charity is tax exempt, retained trust income is generally not taxable to the trust, but any distributions ar
