Trust Principal means passive assets held in the trust. For instance, if a person transfers stocks into a trust, those stocks are considered principal of the trust until they are sold, at which point they are treated as income. The same can be said of the family home. If the home is owned by the trust, it is considered principal. However, when the family sells the house, the proceeds from the sale are considered Income. Distributions of principal from a trust are not taxable to the beneficiaries.