I think the distribution to the wife from the CO trust needs to be treated as related party transactions?  Huh?

The CO Trust is 50/50 as per my original answer. What happens to the deceased husband's share upon his death? The answer is in the Trust document. It sounds like you are saying some of the money from the sale was distributed to the wife. Probably 50% of that is hers/her grantor trust half and the other half is a distribution from the deceased husband's now irrevocable trust share. The distribution from the husband's share may be income, principal or some of each.

She set up the FL Trust as a Grantor Trust and it owns her new home. "we can elect whether or not deduct the FL house purchase" What would you propose to deduct?

"and make it the 1040 income for the wife." What kind of income is attributable to owning your personal residence?