@JFW3 , generally agreeing with your conclusions ( i.e. the understanding of the rules / text of the Trust docs & conditions ). Where I have an issue is that for your brother to meet the gain exclusion, he must have owned the property ( for 2 years) and used as main residence ( for 730 total days ). If you transfer/distribute the asset to him, his ownership comes into being ONLY after transfer ( he would have dominion ).
You are also correct that the distribution of the corpus of a trust is generally not income to the beneficiary.
Does this make sense ?
