Capital Loss Deductions by Beneficiary After Estate Trust Paid Out?

[taxfused]

Spouse's parent died 10+ years ago. Trust was set up to invest for spouse's benefit; investment was liquidated in 2007 at a multi-thousand-dollar capital loss (the will stipulated dispersement of all trust assets as of particular date in 2007) and spouse received a check.

__Do we have to report this as income?__ (Investment co. tells spouse "no"; common sense says "yes")

__Can we deduct the capital loss?__ (IRS Pub 559 suggests maybe...but as carry-over-year losses claimed in the estate's final filing year. We never got a K-1...just the 1099 the investment co provided to the trustee. Am seeking a pub, decision, etc. that makes this clear. I think 559 is saying we should be able to deduct, except that we've never received a tax form _from_ the estate ... just one provided _to_ it.)

__If estate can/must claim first-year of a multi-year loss, will we see that (minus admin costs) as another payment from the trustee?__ (Spouse and siblings each had a trust set up for them based on equal-parts of the residue of the estate; each was the sole beneficiary of their own trust.)

[taxfused]

A quick clarification: the investment made gains in the late 1990s; the estate/trustee paid those taxes; market tanked in the early 2000s and the investment never recovered. So...loss is against gains made/taxes paid by estate vs. something the parent had held during their lifetime.