There are several issues here. You need tol know whether the trust is deemed to be a foreign trust for purposes of US tax law. In which case form 3520 has to be filed. Penalties for nonfiling are onerous.

A trust such as a Totten Trust in the USA or a trust for sale of English property is probably not a trust necessitating such filing. But a FBAR report on D F 90-22.1 would have to be filed.

While pension benefits (including pension trusts) are dealt with in the current tax treaty, other savings schemes are not. Just as US mutual funds are not recognised as unit trusts (with adverse tax consequences in the UK), 529s and Child Trust Funds are currently taxable in the other country and potentially doluble-taxed.

As the grandparents provided the funds, your problem seems to be: Form 3520 and/or 3520A, interest on accumulations in the trust that can exceed earnings, UK penal tax on trusts maintained beyiond a beneficiary's 18th birthday, and other nasty tax anomalies and cross-border conflicts.

But I don't have all the facts, haven't researched anything, and wrote the above just to give you hints for further research. Presumably the interest is paid with deduction of UK tax. Whether for US tax the parents' (or parent's) higher rate applies may depend on the nature of the account and what you mean by "trust". It seems to me that it should have been possible to take the money out of the grandparents. estate for UK IHT as a Potentially Exempt Transfer while avoiding US taxation of the interest. Of course the interest is likely to be insignificant these days. But there are clever ways of avoiding all these traps. If the money is significant.

Whether interest left the account or not is irrelevant. Finally: if you are talking about a lot of money, get professional advice from one of the few experts in cross-border tax. Penalties can exceed the value of the account. Google 'GAO nonfiling' to download a USG analysis of the tax problem relating to the 90% of the estimated 2 million US citizens abroad.