Updated July 28, 2026. Quick answer: They generally do not move. Capital gains allocated to corpus are excluded from distributable net income under IRC §643(a)(3), and DNI is the ceiling on what a distribution can shift. So a trust holding appreciated assets can distribute cash generously and still be taxed on its gains at the compressed trust rates.
The mismatch that surprises trustees
A trust sells an appreciated asset, realises a large gain, and distributes the proceeds to the beneficiary. Intuition says the beneficiary now has the income. The tax result is usually the opposite: the gain sat in corpus, never entered DNI, and stays taxed to the trust — at the top rate, and potentially with the 3.8% net investment income tax on top.
So the single largest tax item a trust is likely to have in any given year is frequently the one a distribution cannot help with. That is the opposite of how most people assume trust distributions work, and it is worth knowing before an asset is sold rather than after.
The exceptions exist, and I am not going to summarise them from memory
There are defined circumstances in which capital gains may be included in DNI — broadly, where they are actually distributed, or where they are consistently treated as part of a distribution under the governing instrument or a consistent practice. The regulation setting out those circumstances is specific and I could not read its full text from a primary source in preparing this page, so I am not going to paraphrase it. If your trust anticipates realising significant gains, that regulation is the thing to have your adviser look at, and the answer often depends on how the trust instrument is drafted.
The practical point
Whether gains can be pushed to beneficiaries is largely settled by the trust document and by consistent administrative practice — which means it is a decision made when the trust is drafted, or by a pattern established early, not one available for the first time in the year of a large sale.
No dollar amounts appear on this page. The trust rate brackets are adjusted annually, and the trust threshold for the net investment income tax is not a fixed figure at all — IRC §1411(a)(2)(B)(ii) ties it to the start of the top trust bracket, so it moves every year. Take current figures from the IRS revenue procedure for the year in question.
Sources
IRC §1(e) and §1(j) (as made permanent by P.L. 119-21); §641; §643(a); §644; §651 and §661 (distribution deduction); §663(b) and Treas. Reg. §1.663(b)-2; §671 and §673–677 (grantor trust rules); §675(4)(C) (substitution power); §1411(a)(2) and (b) (net investment income tax); Rev. Rul. 2008-22. North Carolina Dept. of Revenue v. Kaestner Family Trust, 588 U.S. 262 (2019). All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.