Final answer:
As long as Cari is alive, any income generated by her revocable trust should be reported on her own personal tax returns. Luke, the beneficiary, has no tax reporting obligation for the trust income while Cari is living. Consulting with a tax or legal professional is advised for compliance with trust-related tax laws.
Step-by-step explanation:
While Cari is living, the trust she established is considered a revocable trust, which means that she retains control over the trust assets and can change or cancel the provisions of the trust. Since the trust is revocable, any trust income is typically treated as the income of the grantor, Cari in this case, for tax purposes. Therefore, Cari would report the trust income on her own personal tax returns as if she had earned that income directly, even though the trust may be managed and earned by the trust itself. After Cari's death, the situation will change, and the income distributions made to Luke will need to be reported by him in accordance with the terms of the trust and relevant tax law. However, during Cari's lifetime, Luke has no tax reporting obligation with respect to the revocable trust income.
It is important for Cari to consult with a tax professional or legal advisor to ensure compliance with all tax reporting requirements associated with her revocable trust, as these laws can be complex and may change over time.