They should have deeded the house to the three beneficiaries, before they sold it.  Then it's not a trust problem, it's a beneficiary with a Section 121 issue who may have a problem.  I would want to see the trust document, to find a reason the sale was delayed so long.  Smells like breach of fiduciary duty. 

I don't think the exclusion goes on the 1041, though.  The question is how to show it on the return of the beneficiary who may qualify.  He has a Schedule K-1 that shows a large capital gain, right?  He can leave it off the trust distributions line of the Schedule D, run it up the 8949 flagpole and see if IRS salutes it.  

Has the trust been paying the real estate taxes all this time?  Anyone claim those deductions?  If there was income, looks like a good way to get around the SALT cap until you get caught.  How about insurance, maintenance and repairs?  100% paid by the occupant?  Looks like rent to me, for the 2/3 not owned.