When the gift was made to the trust, unless some provision of the trust made it an incomplete gift (such as a power of appointment retained by the grantor) then there was a completed gift and since the retained life interest is not a qualified interest it is treated for gift tax purposes as though the entire property were gifted.
Upon death, the retained life interest will cause the property to be included in the gross estate but their will be an adjustment in the prior gifts reported on the estate return to take into account that some (or all) of those prior gifts are inventoried in the gross estate. This should largely avoid a double taxation on the same asset. Since the property will be included in the gross estate the trust will receive a stepped up basis to the propery's value at date of death and will pass that basis through to the beneficiaries on trust termination.
I do not practice in a community property state so cannot comment on any impact community property laws may have on the above.
Very truly yours,
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