A Roth IRA is used to fund a credit shelter trust. Distributions are made from the Roth IRA to the trust. The financial institution issues a 1099-R, noting it is a Roth IRA. The distribution is not taxable since it is a Roth IRA. When the trust distributes the money to trust beneficiaries and issues a Schedule K-1 (Form 1041), is the distribution to the trust beneficiary taxable? Is this taxable or nontaxable status noted on the K-1?

The fact that there is a trust in the middle will not change the tax free status of the roth. However if the trust has any amount of TAXABLE income, then any distribution will constitute a portion of that income.