N.J. Stat. § 54A:5-3
The income of a beneficiary of an estate or trust in respect of such estate or trust shall consist of that part of the income or gains received by the estate or trust for its taxable year ending within or with the beneficiary's taxable year which, under the governing instrument and applicable State law, is required to be distributed currently or is in fact paid or credited to said beneficiary.
The income or gains of the estate or trust, if any, taxable to such estate or trust shall consist of the income or gains received by it which has not been distributed or credited to its beneficiaries.
Where an estate or trust has paid a tax under this act upon income distributed or to be distributed to a beneficiary, such beneficiary may exclude such income from his gross income in the year paid or credited to him.
N.J.S. § 54A:5-3