It is a bit unclear as to your exact understanding of "trust law" and the issue presented, but once you have reduced property to cash you are typically just distributing corpus (principal of the trust) and, technically, distributions of corpus do not have to be reported (and actually do not even create a filing requirement).
However, if you do not have the authority or discretion in the trust instrument to distribute long term capital gains, then those gains remain within the trust (i.e., they are considered to be corpus).
