Have Finance Questions? Ask a Financial Expert Online.
The distribution from the irrevocable trust may be taxable or not taxable, The taxable part may be partly capital gain and partly an ordinary income.All depends on circumstances.For instance - if the trust sells a capital property , realize capital gain and passes that gain to beneficiaries - that will be reported as capital gain on K1.
However - if the trust received interest income - and that income is passed to beneficiaries - that will be ordinary income.
If the trust has NO income - and distribute the corpus - that would not be taxable.
It is possible that the trust receive not taxable income - in this case that income will be passed to beneficiaries as not taxable as well.
So - the character and type of income which the trust passes to beneficiaries would not change.