DEAR BOB: I am the trustee of my mother's living trust. When she dies, can I sell her house, which she still lives in, and realize the profit without taxation? Or do my husband and I have to live in there for two years to be eligible for that $250,000/$500,000 tax exemption?

As disburser of my mother's estate's funds to my brother, his child and my children, I'd also like to know if they will owe taxes on their inherited funds.--Carol B.

DEAR CAROL: If your mother has a true living trust, she--not you--is the trustee until she either dies or becomes incompetent. Then you, as the alternate or successor trustee, take over trust asset management.

One thing you should do now is to be certain that the title to your mother's house and other major assets--real estate, stocks, bonds, bank accounts and automobile--have been transferred into the living trust. To illustrate, recorded title to your mother's house should read "[Her Name], Trustee." If the titles to the assets are not transferred to her as trustee of her living trust, those assets will be subject to probate costs and delays.

When your mother dies, presuming her major assets have been transferred into the living trust to avoid probate, as successor trustee you then have authority to sell and distribute those assets to the trust beneficiaries.

However, if your mother dies in 1999 and leaves a net estate of more than $650,000, federal estate tax must be paid. Depending on state law, there may be an inheritance tax for the recipients. Now is the time to consult an estate-planning lawyer where your mother lives to make certain the assets have been transferred to her living trust. Just writing a living trust document is not enough.

DEAR BOB: Why don't you like biweekly mortgages? They help homeowners pay off their loans faster, thus saving thousands of interest dollars.--Lee R.

DEAR LEE: I'm all for paying off home loans early and saving interest dollars. And I have nothing against biweekly mortgages, which automatically withdraw payments from the borrower's bank account every two weeks. That's the equivalent of making 13 monthly payments each year instead of 12.

However, I do object to mortgage lenders who offer to set up a biweekly mortgage account and charge a fee, such as my lender's $495 plus $5 per month, for something that borrowers can do themselves for free.

If I want my home loan paid off in about 21 years (the time a biweekly mortgage usually gets paid off), all I have to do is divide my principal and interest payment by 12 and add that amount to each monthly mortgage payment I send to my lender.

DEAR BOB: Six years ago I fell in love with a wonderful man. He had been recently divorced and wasn't ready to get married, but we bought a house together where we lived for about four years. Then he encountered financial difficulties in his business and turned mean toward me. I moved out about a year ago after he filed Chapter 7 bankruptcy.

During the time we lived together and owned our house, I always paid half the mortgage, property taxes and other expenses. The house appreciated at least $100,000 in market value, maybe more. Now the bankruptcy court insists on selling the house to pay his debts. The price a buyer offered is $50,000 below market value. What can I do to protect my home equity?--Vickie H.

DEAR VICKIE: Your situation shows the risks of co-owning realty with a bankrupt debtor. But most bankruptcy courts will allow the "innocent co-owner" to match the buyer's offer. It's like a "right of first refusal." That means you can "buy out" the bankrupt debtor's share of the equity.

To illustrate, suppose there is $100,000 net equity in the house. Your co-owner's share is $50,000, and your share is $50,000. Most bankruptcy courts allow the "innocent owner" to pay the debtor's $50,000 share in this example and obtain title to the property.

But you will need to hire an experienced bankruptcy lawyer to protect your rights. Otherwise, your equity in the house may be wiped out or substantially reduced.

DEAR BOB: I own a rental house that my tenant wants to buy. I'm willing to sell because I will have a handsome profit, but I want to do an Internal Revenue Code 1031 Starker tax-deferred exchange. Must the property I acquire already be a rental property? I am considering trading into an owner-occupied house.--Ms. S.C.

DEAR MS. S.C.: No. The property you acquire in a tax-deferred exchange need not be presently used as a rental. However, after you acquire it to complete your tax-deferred exchange, it must be used as an investment or rental property and cannot immediately become your personal residence.

DEAR BOB: My husband and I plan to retire soon. We expect to sell our current house and build a new one. Should we invest the sale proceeds into our new house, or should we make a small down payment? Is a 15-year or 30-year mortgage better?--Lola E.

DEAR LOLA: I do not recommend that retirees make large down payments for their new homes unless there is a corresponding advantage, perhaps a reduced purchase price. So many unexpected events that require cash could occur, and if you're retired, obtaining cash for emergencies or investments can be difficult.

My suggestion is to make a minimum cash down payment and obtain the largest 30-year mortgage for which you can qualify with your retirement income.

If you later wish to pay off your mortgage faster, you can make extra $100 or $200, perhaps more, principal payments with your monthly mortgage payments to save interest and cut the mortgage's payoff time.

DEAR BOB: Recently a friend let me use his two-week time-share at a California oceanside resort. He originally paid about $15,000. When I expressed interest, he offered to sell it to me for $7,500. But while I was vacationing there, I talked to the developer's salespeople and discovered resales often sell for much less.

Sometimes, I learned, the owner just "quit-claims" the title, to be released from liability to pay the annual expenses. How much should I pay for a $15,000 two-week time-share?--Elva L.

DEAR ELVA: I don't know. Nobody does. Time-shares are not real estate investments. Instead, they are future purchases of vacation time. Personally, I would not buy a vacation time-share, especially if there is any personal liability for mortgage payments or annual fees that could show up on my credit report if I decide to "walk away." Offer your friend $1,000. I'll bet he grabs it to be rid of that time-share.

DEAR BOB: Just about a month ago, I saw an out-of-town mortgage company's ad for refinancing. It said: "If you're paying more than 7.5 percent on your home loan, we can refinance and save you money." Since we missed the last mortgage refinancing bonanza and are still paying 8.75 percent, I called.

The loan officer quoted me the terms, which were 7.5 percent interest and a one-point loan fee, plus appraisal and "normal closing costs." The next day, we received a loan application and other papers that we promptly filled out and returned to the mortgage company. Two days later, an appraiser came out and insisted on being paid his $300 appraisal fee, which my wife paid by check. Several days later, another loan officer phoned to tell us we were approved. We were told it would take a few weeks for the paperwork and the closing.

But when we arrived to sign the papers, our interest rate had jumped to 8 percent, and the loan fee was now two points instead of one. The explanation was that because we are taking cash out--about $40,000 for remodeling--our interest rate and loan fee are higher than originally stated. The lender's good-faith estimate quoted the original, advertised terms.

We didn't sign the loan papers. Do we have any recourse against this dishonest lender?--Kelly G.

DEAR KELLY: No. Congratulations for not signing. You were a home loan "bait and switch" victim. Unfortunately, there is no practical recourse against dishonest lenders, such as the one you describe, who suckered you into making a loan application, but didn't tell you about the different terms for taking cash out for remodeling.

Unfortunately, there is no penalty for a mortgage lender who mails you a false good-faith estimate statement within three days of your loan application. Dishonest lenders know this.

Yes, you can file a complaint with the lender's state or federal regulator. However, it probably won't do any good. I would like to be more optimistic, but you discovered a major loophole that allows lenders to bait-and-switch borrowers without penalty.

DEAR BOB: Nine years ago I came to the United States and overstayed my visa. I have a business and pay my taxes. I now own two duplexes but am in the Immigration and Naturalization Service procedure.

If I get deported, what happens to my U.S. properties? Can I put them in some type of trust even though I don't have a green card? My mother is here legally but also does not have a green card yet. What type of attorney should I look for to help me protect my U.S. properties?

--Michael A.

DEAR MICHAEL: Fortunately, foreign citizens can own U.S. real estate. Many U.S. properties are owned by foreign residents and citizens. However, when a nonresident sells U.S. real estate, part of the proceeds must be held in trust to pay taxes.

If you are deported, your U.S. property cannot be taken away from you unless it was acquired by illegal methods, such as drug dealing. Your mother, another relative or friend can manage it for you.

In fact, we welcome foreign investment in U.S. real estate. For example, a few years ago, Japanese investors overpaid millions of dollars for U.S. office buildings, golf courses and other realty investments. I presume you already have an immigration attorney. He or she can best advise on the immigration technicalities.

DEAR BOB: My brother and his second wife, both in their seventies, own and live on a farm. The farm land is leased to a neighbor, but they live in the house. My brother wants to live there until "they carry me out feet first," as he often says. But they need more income, such as for a new roof on their house and a new car. Can they get a reverse mortgage?--Eva L.

DEAR EVA: Unfortunately, the answer is no. Reverse mortgages, which pay senior citizen homeowners lifetime tax-free income, are not available on combination residence-business properties such as farms. Nor are they available on mobile homes that are not on permanent foundations on individually owned lots.

But reverse mortgages are available on most condominiums occupied by senior citizen homeowners. Reverse mortgages also are available for home purchases by senior citizens, requiring no monthly payments.

DEAR BOB: Thanks for your frequent information about Internal Revenue Code 1031 Starker tax-deferred exchanges. As a result, I sold my troublesome fourplex in Phoenix to a neighbor who enjoys problems, put the sales cash in a bank trust account as you recommend, and used it to buy what will become my dream house after some renovation. It is currently rented, and the lease expires next June. How long must I rent that house before my wife and I can move in?--Hugo R.

DEAR HUGO: Nobody knows the answer to your question. Even the IRS officials I've consulted won't commit. I've talked with accountants who recommend renting the property acquired in an exchange at least six to 12 months. One lawyer I consulted suggests two tax years. I think that's a bit extreme.

I presume you traded equal or up in market value, had the sales proceeds held in a trust beyond your constructive receipt and didn't receive any "boot," such as cash or net mortgage relief. In case the IRS audits your Starker tax-deferred exchange, you must show real estate investment intent. Your later conversion to personal use is not a taxable event.

DEAR BOB: Some time ago you wrote about the benefits of putting one's house, real estate investments, bank accounts and other major assets into a living trust to avoid probate costs and delays.

When I showed your article to our family attorney, he agreed it is a good idea. But when I asked what it would cost, he said about $2,500. That sounded like a lot of money to me. We have a simple estate, worth only around $600,000. Doesn't that fee sound too high?--Ray R.

DEAR RAY: I hate to criticize a fellow lawyer, but $2,500 to create a simple living trust sounds outrageous unless your assets and estate plan are complicated and require many hours of work. Most attorneys charge $1,000 or less to prepare a simple living trust. Shop around. Maybe you selected the high-priced lawyer in town.

DEAR BOB: My husband and I bought our house about three years ago. Several months after the purchase, our daughter, age 6, told us there had been a murder-suicide on the property. She learned about it from a neighbor. The resident killed his live-in girlfriend in the driveway and then killed himself.

Our seller did not inform us that he had been renting out the house and that this murder-suicide had occurred. If we had been informed, we would have had second thoughts about buying. Are there any laws requiring such disclosures? Is there a statute of limitations?--Karen L.

DEAR KAREN: Some people believe it is a bad omen to live in a house where there has been a death from other than natural causes. If the issue of death was important to you, you should have asked the home seller before purchasing.

Personally, I've bought two rental houses where natural deaths had occurred. I've owned a rental house off a street on which a neighbor was shot by a known criminal. I don't believe those deaths hurt the market value or desirability of those houses.

The legal issue you raise is whether a murder or suicide death on the property affects the home's market value or desirability. If so, it should be disclosed to prospective buyers. Of course, the exact answer depends on the state where the house is located and if that state has any statutes or court decisions on the issue.

For example, California Civil Code 1710.2 requires residence owners and their real estate agents, if asked, to disclose if a death occurred on the property within three years before the sale or rental. However, if the death (regardless of cause) occurred more than three years earlier, California law does not require it to be disclosed. For further details, consult your attorney.

DEAR BOB: Recently you had a question about a neighbor's tree roots, which were damaging the adjoining driveway. You explained there is a right to cut the offending tree roots back to the property line, but a "rule of reasonableness" applies, so a tree expert should be brought in to be certain the cutting won't kill or damage the tree.

However, you also should have advised the reader to consult a real estate attorney about a continuing nuisance. Perhaps the driveway owner should sue the neighbor for an injunction to remove the tree.--Mr. R.M., attorney

DEAR MR. R.M.: Good idea. However, if the lawsuit for an injunction to abate the tree root nuisance is lost, then the homeowner will have incurred substantial attorney fees without any result. Also, suing the neighbor won't result in warm feelings.

DEAR BOB: As a landlord, I enjoyed your information about lease-option home sales. Suppose my tenant pays $1,200 per month rent and I give the tenant a $400 rent credit toward his purchase. After two years, that's $9,600. How does the landlord-seller account for that money? Also, how do mortgage lenders consider rent credits?--Kim W.

DEAR KIM: Based on your example, as the landlord, you would report the full $1,200-per-month rent on Schedule E of your tax returns as rent income. If the tenant buys the house, let's say after two years, you subtract the $9,600 rent credit from the sales price, much the way you would subtract a real estate sales commission and other sales expenses.

My experience has been that some mortgage lenders, such as Fannie Mae and Freddie Mac, won't count the full rent credit as down payment. But I've found that portfolio lenders, such as banks and S&Ls, count the full rent credit as down payment, especially when the buyer gets an adjustable-rate mortgage.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128. {copy} 1999, Tribune Media Services Inc.