Interesting and possibly **moot** for a couple of reasons. First, if all of the income plus some principal is being distributed, the exemption does not even factor into the equation; there is no income/gain left to be offset.
Second, capital gain/loss typically remains with the trust so a big gain in one year (i.e., the trust earns 5% including a sale of stock), could still mean that the trust is technically distributing all of its income (interest, dividends, et al).
Regardless, this is most likely going to be moot in most tax years since the amount of the exemption will not come into play as a result of the trust being forced to make (probably) larger than anticipated distributions.
