Maybe I am missing something but I believe what you described are the tax rules for a Simple Trust.   My understanding is if the Trust does not meet the rules of a Simple Trust it is deemed a Complex Trust.   A Complex trust is one which retains income and does not distribute it to the beneficiaries but can distribute some of it's principal to beneficiaries.  The Trust Agreement for my client specifically states the income of the trust can be retained and reinvested.  My research found the following guideline for taxation of trusts:

 If a trust permits accumulation of income and the trust does not distribute it, the trust pays tax on the income.

Also I found where a Trust can be Simple and converted to Complex or vice versa. 

I would be interested to know if you believe a Complex trust that retains income and does not distribute income, would still require the beneficiaries to pay tax on the income rather than the trust.