This is not a Trust question per se but rather a TAX question. Please sit down with your CPA and get this resolved in minutes. Good luck.
This is a complex area of tax law and cannot be fully addressed without knowing all of the facts. The income reported on the 1099-R must be included income of the trust in the year of receipt, but the trust can take deduction for income paid out to the beneficiary in the same year. I recommend providing a copy of the trust and the beneficiary designation, along with the 1099-R, to an attorney experienced in fiduciary income taxation. He or she will then be able to tell you how things should have been handled, and whether there is a possibility for recourse against the trustee or IRA custodian.
I agree that you need to retain a tax attorney or CPA to guide you through the process of properly reporting this matter.
The answer given does not imply that an attorney-client relationship has been established and your best course of action is to have legal representation in this matter.