QDEAR BOB: We have owned and lived in our house more than 25 years. Soon we will be moving to another house. We plan to rent our current house, instead of selling it, for a few years. However, we don't want to lose that tax exemption you often discuss when we eventually sell. How long can we rent our house without jeopardizing the tax exclusion benefit? -- Prim P.

ADEAR PRIM: To qualify for the Internal Revenue Code 121 tax exemption of up to $250,000 of capital gains (up to $500,000 for a qualified married couple filing jointly), you must have owned and occupied your primary home an aggregate two of the last five years before its sale.

In your situation, that means you can rent the house to tenants up to three years before losing your IRC 121 entitlement. Consult a tax adviser for details.

DEAR BOB: What is the logic that some states require the buyer of property to purchase title insurance for the acquisition? It would seem the seller should be required to guarantee title and provide the title insurance. -- Elam F.

DEAR ELAM: You are mistaken. Title insurance is not required by law in any state.

However, almost every mortgage lender requires a lender's title insurance policy or the buyer won't be able to get the mortgage. In addition, smart buyers always insist upon an owner's title policy to protect their equity.

Local custom usually determines whether the property buyer or seller is expected to pay the title insurance cost.

For example, in the county where I live, it is customary for the home buyer to pay for the title insurance. But in the adjoining county to the south, the custom is for the home seller to pay for the buyer's title insurance.

However, this, like just about everything else in real estate, is negotiable. No matter the custom, if you are the buyer and are short of cash, specify in your purchase offer that the seller is to pay for your title insurance. Unless it's a local seller's market for homes, if the seller wants to accept your offer, the seller will probably agree to pay for your title insurance.

Or, if the local custom is for home sellers to pay for title insurance, but if it's a strong seller's market, as a seller you can specify in the sales contract that the buyer will pay for the title insurance.

Whether the home buyer or seller pays for the title insurance, the seller is obligated in the sales contract to deliver "marketable title." If the title isn't insurable, with exclusions for known exceptions such as an easement, then the title isn't marketable.

DEAR BOB: We are concerned because our elderly parents own an expensive house free and clear but do not have it in a living trust. They seem to think having their home included in their written will is sufficient to avoid probate. What is the best way to avoid probate in a situation like this? -- Merle D.

DEAR MERLE: The exact answer depends on state law where your parents' home is located. Some states have probate-avoidance procedures for small estates, such as those below $50,000 to $100,000.

In most states, when the decedent's assets pass according to the terms of their written will, local probate court proceedings are required. Delays can range from a few months to a few years. For example, when my mother died a few years ago, her Minnesota lawyer told her not to put her condominium title into her living trust. That turned out to be bad advice.

It passed upon her death according to the terms of her will. That meant it had to go through probate court. Although there were no problems, it took almost a year to clear the title to her condo. Thankfully, she didn't leave any large debts requiring the sale of the condo.

You should recommend that your parents consider transferring title to their home and other major assets into their living trust to avoid probate costs and delays. Another advantage of a living trust is if an owner becomes incompetent, such as due to a severe stroke or Alzheimer's disease, then the alternate or successor living trust trustee can manage the assets, even selling the property if necessary.

Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com.

{copy} 2004, Inman News Service