have to ask this. was your father-in-law alive when the condo was sold? was he still the trustee or had other power and rights over the trust assets so the IRS would say it's a grantor trust. if so, the grantor would be taxed on all income. if he had died a full trust return (not a grantor trust return) would have needed to be filed. In that case, you would get a regular K-1 not a grantor trust letter.
i strongly suggest you and the other beneficiaries consult a lawyer because based on what you provided F-I-L should pay taxes on the entire gain subject to his eligibility to tax the home sale exclusion. then since he made gifts to each of you of more than the $15,000 limit he would also have to file a gift tax return.
