Sale of primary residence in a trust

Senior taxpayer , who is single , creates a residence trust. The trust owns the house but the taxpayer has the right to live in the house during her lifetime. Taxpayer has lived in the house for 25 years.
Prior to death the taxpayer decides to relocate and sell the house in the residence trust.
The sale of the house would be reported on the trust 1041.
Is the section 121 exclusion of $250,000 lost due to the creation of the trust ?

It depends on the specific terms of the trust:

Under Internal Revenue Code Treasury Regulation 1.121-1(c)(3), if a residence is owned by a trust, for the period that a taxpayer is treated under sections 671 through 679 (relating to the treatment of grantors and others as substantial owners) as the owner of the trust or the portion of the trust that includes the residence, the taxpayer will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the trust will be treated as if made by the taxpayer.

Language does matter but seems more like you are dealing with a retained life estate. In such case, you use the §7520 tables to determine percentage of ownership and division of sale proceeds. That portion attributable to the sale of the life estate qualifies for exclusion. That portion attributable to the remainder does not.

Right to sell and keep proceeds can be in trust language in which case you get entire exclusion.