Mandatory Trust Law and Legal Definition

Mandatory trust is a trust in which beneficiary’s interest in the income is mandatory. It is a most restrictive form of trust, where the trustee has no discretion, but must distribute its income or principal according to a schedule set by the trust document. The trust may require disbursement of a specified percentage or dollar amount of the trust earnings. It is usually for a limited lifetime, because the trustee must distribute income and principal according to a set formula. One of the drawbacks of the mandatory trust is that the trust pays out the money regardless of the beneficiaries' needs, tax situation, or their credit situation. The trustee has no discretion as to the amount of the payment or to whom it will be distributed. Mandatory trusts are also called simple trusts.