Grantor has established a trust, naming a bank as trustee. Pursuant to the terms of the trust document, Grantor is to receive all of the income generated by the trust assets during his life. Grantor may withdraw assets from the trust or place additional assets into it. The assets placed into the trust consist of Grantor's mutual fund portfolio, personal residence, a rental property located in another state, and two installment notes held by Grantor. Upon Grantor's death, all of the assets remaining in the trust are to be distributed to Grantor's two children. Which of the following statements is/are correct? 1. Upon the transfer of the installment notes to their trust, any deferred gain will be recognized as taxable income. 2. After the transfer, the income from the mutual funds will be reported on Grantor's tax return. 3. Upon the transfer of the rental property to the trust, all excess prior years' depreciation will be recaptured. 4. After the transfer, the $250,000 exclusion from capital gain remains available for the principal residence. 1 and 3 2 and 4 4 only 1,2 , and 3