family trust tax implication help.

My father passed recently and my brother and I have been helping my mom re- engineering my father's estate from a mish-mash of random investments to a
very structured, asset-allocated portfolio of diversified index mutual funds and high quality muni-bond funds targeted for both income and growth. Our efforts are currently being rewarded.
My question is this...since these are considered "complex" trusts by the IRS, does the selling of the old securities and the purchase of the new ones require the payment of capital gain taxes, or were the taxes already paid on a yearly basis?
In other words, were the "old" trust investments tax-deferred? According to my reading of the 1041 publication, our taxed were supposed to be paid in annual gain/loss fashion, so the actual liquidation and rebuy process should not generate any "extra" capital gain tax liabilities.
Is it that individual equities being sold ARE potential capital gain, but mutual funds gain/losses have already been taxed on a yearly basis?
Maybe someone here can help with this...thanks!
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re-
growth.
You don't specify when the trust was created. If the trust was created after death, assets usually receive a step-up in basis and gain/loss is calculated after that date. If these assets were in a trust before death then it gets more complicated. You should also ask in a tax forum - news:misc.taxes.moderated
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