Must a brokerage account be used to pay off mortgage in event of death?
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Must a brokerage account be used to pay off mortgage in event of death?
My dad has a 500K mortgage and a brokerage account worth a million. He has named me as beneficiary of the brokerage account which is not an IRA. My stepmother is on the title of the house. I don’t know if she is on the loan but I doubt it. In the event of his death, it is my understanding that the brokerage account must be used to pay off the mortgage. Is this true?
Asked on August 1, 2013 under Estate Planning, Ohio
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 10 years ago | Contributor
As a general matter, a brokerage account does not have to be used to pay off the mortgage; the estate or the beneficiary/heir has the right to not pay the mortgage and allow the home to be repossessed. (The bank/lender could sue the estate, but not a beneficiary, for the remaining balance, if the home was underwater, in most states, but rarely chooses to.)
The above, however, can be modified by contract or agreement, so the mortgage loan and/or the paperwork governing the brokerage account may say that the brokerage account will be used to pay off the home in certain circumstances. This would not be uncommon if both the mortgage and the account are with the same financial institution, who may have insisted on linking the two so as to protect their own position.
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