Trust with a California resident trustee or beneficiary: Federal law taxes the accumulated income of a trust. If a trust has a California resident trustee or beneficiary, the beneficiary is non-contingent, and the trust has not filed a California return and paid California tax as the income was accumulated, then the full amount of the accumulation distribution is taxable to the beneficiary in the year the accumulation distribution is received. If the trust was not required to pay California tax because the beneficiaries’ interest was contingent, then the beneficiary in entitled to the benefit of income averaging.