If father has this trust as a revocable living trust he can do anything he wants as far as I know. But logically he is going to pay tax on the income if it remains in the living trust. That might be OK, but I think he can give away something like $17K per year per child with no tax consequence to recipient or trustee. It might not be a bad idea to do what works logically. And if the recipient is going to get the property when father dies, she will get the property at the "stepped up" to current value price with no tax consequence if she sells it before it has any increase in value. That is such a good deal, why not suggest it?
