I am about to receive funds from a pretty big trust. The funds are about half capital gains, and I am responsible for paying the associated tax when I get it.
There are some relatively small legal expenses. Are they deductible because they were incurred to get taxable income?
The legal fees incurred by the trust are a deduction on the trust's income tax return not your return.
Right, but I was talking about my legal expenses. My understanding is that legal expenses related to something you will pay income tax on are deductible.
Not necessarily. Money spent on tax planning or tax preparation is deductible. Just because it's related to taxable income doesn't make it deductible per se.
An expense you incur for the production or collection of taxable income is deductible. If you pay an attorney to help you obtain a distribution from a trust that would be taxable, then the fees would be deductible. E.g., you are due a distribution but you are required to sign a variety of legal documents. You hire the attorney to review the documents before you sign in order to ensure that you are going to collect what you are entitled to. You don't agree with the trustee's determination of the amount that you are entitled to. You pay an attorney to obtain the additional income from the trust.
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