My wife is a co-trustee of a trust set up by her father to hold real estate and then divide and distribute said property after his death. My wife will be getting a fee to compensate for the considerable time and energy she has had to put into this.
Apparently, there may be more than one way to handle the fee for tax purposes. It has been suggested to us that we look into handling the fee as a cash distribution vs a "payment".
Any advice or insight into this is greatly appreciated.

UNLESS your spouse is a professional ( if she is a professional trustee, this income is also subject to Self-Employment Tax reported on SCh C of 1040 and Sch SE of 1040).trustee, she needs to report her trustee fee on IRS Form 1040 on line 21;so, no matter how she reports it, the fee earned is taxed as ordinary income on her return. the trust as a taxpayer claims the deduction for the trustee fees on line 12 of the tax Form 1041. Any portion of the trustee fees that may be attributable to a beneficiary share that receives Form Sch K-1 of 1041 are netted out prior to the issuance of the Form Sch K-1. To the extent that income is available in the trust to pass out to a beneficiary, that tax payment becomes an income distribution, and the beneficiary will receive a Sch K-1 of 1041 from the trust.