Yea, giving a $650K property to such a person is a great idea. Sarcasm intended.

What is the relationship of Trustee to Beneficiary?

Do you know why Trustee wants to do this?

Legal advice wouldn't hurt.

And is Trustee ends up doing this, the election for the Trust to treat as if sold and pay the tax sounds prudent.

"tax on a future sale as gain would likely be less than the 250K exclusion." What exclusion? The beneficiary would live there for 2 years and then sell? The beneficiary is the current tenant?