Fiduciary income tax is the taxation of income earned by estates and trusts, typically reported on IRS Form 1041. Trusts have compressed tax brackets, so undistributed income can incur high rates. Distributable net income (DNI) shifts taxation to beneficiaries through K-1s. Coordinated distribution planning helps manage overall tax burdens.

CPAs model DNI to decide whether to distribute income or retain it, balancing brackets between trust and beneficiaries. Advisors coordinate timing with liquidity events and estimated payments. Proper planning can materially reduce combined tax burdens.