Clients established two irrevocable residence grantors trusts years ago; Mom's trust was funded with one property (a summer house). Dad's Trust with a  2 family 50% owner occ. 50% rental they still live in.

Daughter is sole trustee and beneficiary.

Mom's  house was sold and proceeds deposited in brokerage account titled to trust.  Parents still occupy and rent the 2 family.    Parents report and pay taxes on the income via grantor letter

For reasons of Medicaid look back, trustee or her atty, says the parents should not be paying the tax on the trust money. I'm okay with paying tax at the trust level but daughter would like a k1 as beneficiary to pay the tax at her on her return.  Distributions have not been made from the trust account.. 

My understanding is that grantors are responsible for the tax....  What say you o wise ones?