This is a return due Friday, right? Without seeing the trust document, I hate to even opine on the right tax treatment - I can't come up with a scenario where that would be the right presentation, but some days my imagination is limited. 

I would be super unhappy with a client with a delinquent 1041, a nearly-delinquent 1041, a trust company who wasn't wanting to prepare the 1041s (and didn't seem to mind them being delinquent), and an unusual way of calculating / allocating DNI. 

Can you tell us more about what the trust document says? Have you talked to the attorney who drafted it?