Thank you very much for your response. No I did not mean to confuse the issue.   I earlier found a site where the medical paid by the trust could NOT be taken by beneficiary on 1040 Sch A.  I did NOT think that was correct.  But then I came across the  example regarding the $ 10,000 income and $ 6,000 medical  which made me think that maybe only the beneficiary could take the medical if it was included as DNI (since the beneficiary would be picking up income).

Now as far as the original issue: The Trust has interest, dividend, and capital gain  income and expenses.  The Trust does pay tax on the capital gain. The DNI in this case is -0-; so the beneficiary K-1 has no income to report. 

Now if the investments sold resulting in the capital gain was specifically sold for the beneficiary medical expense (and it is listed in the document although in this case the document is not to be found) then the Trust tax would be -0-; the beneficiary would pick up income but has Sch A expenses to offset.  The additional capital gain income would affect the state return.

Is that possible or am I confusing or not completely understanding the issue?