Does "trusted device" unlocking work with an encrypted device? Since Android 5.0, encrypting a device doesn't require configuring a complex alphanumeric screen lock password anymore.

Does this also work combined with with unlocking the device using a "trusted device" connected over bluetooth, or a trusted NFC tag, a.k.a. "Smart Lock"?
Yes, it does. I'm on a Nexus 6, fully encrypted, and I use multiple Smart Lock features, including Trusted devices, Trusted places, Trusted face, and On-Body detection.