QDEAR BOB: I recently talked to a lawyer about putting my house into a living trust to avoid probate, as you often suggest. He said there is no need to go to the expense of creating a living trust. I was advised to have a quit claim deed prepared and keep it with my important documents. When I die, he says, the quit claim deed will be found and then the person named will be able to receive my house without having to go through probate. Does this sound legitimate? -- Heidi B.

ADEAR HEIDI: No. If a quit claim deed, or any type of deed, is not delivered unconditionally to the grantee during the grantor's lifetime, it is not a valid complete delivery of the deed. In other words, you still control the property and can sell or refinance it. After your death, an undelivered quit claim deed found with your papers can be challenged by your heirs and creditors.

I suspect the lawyer either wants to handle the profitable probate of your estate after you die, or he just doesn't know the pitfalls of an undelivered quit claim deed. Or, suppose by the time you die, the grantee named in a quit claim deed has pre-deceased you. Then who will receive your property after your death?

A revocable living trust is a far better alternative. The modest cost is usually far less than the expenses and delays your heirs will encounter if your major assets have to pass through probate court. While you are alive, you can manage your living-trust assets just as you do now, including selling and refinancing.

After you become incapacitated or die, your living-trust successor trustee then takes over living-trust asset management. Of course, probate costs and delays are avoided.

DEAR BOB: Almost three years ago, I bought my home with about 15 percent cash down payment. Because I didn't pay 20 percent down, the mortgage lender required private mortgage insurance. After reading your recent article about PMI, I called my lender and was told I can get my PMI premium removed but I have to pay for a professional appraisal. They strongly recommended their appraisal company. Is there any way I can get rid of PMI without paying for an appraisal, as I believe my loan-to-value ratio is less than 75 percent? -- Maureen D.

DEAR MAUREEN: Paying a $300 or $400 professional appraisal fee to cancel your PMI is a small price for getting rid of your monthly PMI premiums. Your lender needs current market-value appraisal documentation to justify canceling your PMI.

Be sure to be present when the appraiser visits your home to point out all its features. Also, give the appraiser any written sales price details, with addresses, you have on recent nearby comparable home sales, which justify the estimate of your home's current market value. If the new appraisal shows you have at least 20 percent home equity, your lender should cancel your PMI premium.

DEAR BOB: I own a condo where the homeowners association is suing the developer about several disputes. At first, it looked as if we had a solid case. Then the developer counterclaimed against the association and our attorney said he wouldn't have taken the case if he had known all the hidden facts. If our homeowners association should lose and get a big judgment against us, as an individual condo owner might I be liable to pay part of that judgment? -- Henry H.

DEAR HENRY: Possibly. Let's hope your homeowners association has good insurance, a fat reserve balance and a superb lawyer. It's possible if the homeowners association doesn't have sufficient funds and insurance to pay a judgment, the condo owners could have to pay a special assessment for the judgment.

That's what happened a few months ago in the case of James F. O'Toole Co. v. Los Angeles Kingsbury Court Owners Association (23 Cal.Rptr.3d 894) where the homeowners association refused to pay a $110,000 judgment to O'Toole because of lack of funds. The court said the homeowners association must levy a special assessment on its condo owners to pay the judgment.

DEAR BOB: My husband lives and works in another city five or six days each week. Four years ago, we bought a condo there where he lives during the work week. Our plan is to sell the condo after five years of ownership. Will this qualify as his principal residence for that $250,000 tax exemption? -- Linda S.

DEAR LINDA: A principal residence is where the owner spends most of his or her time. If your husband lives in that condo five or six days each week, it sounds like his principal residence.

To qualify for the Internal Revenue Code 121 $250,000 tax exemption, he must have owned and occupied the condo an "aggregate" 24 of the 60 months before its sale. However, you can't qualify for an additional spousal $250,000 exemption because you haven't met the occupancy test. Consult a tax adviser for details.

DEAR BOB: I especially enjoyed that recent letter from the reader asking if she can use IRC 121 (the home-sale capital gains tax exemption) every five years. You correctly said she can use it as often as every 24 months. In fact, this law has spawned a new group of investors like me who use this tax break every two years to build up our retirement nest eggs. I buy homes that need to be fixed up to increase their market value while building up my tax-free retirement assets. I started with a $17,000 investment and have managed to retire in just eight years. I continue to buy fixer-uppers and upgrade them to resell for tax-free profits up to $250,000. -- Tim C.

DEAR TIM: Thank you for sharing your profitable tax-free home fix-up plan. The only disadvantage to your plan is living in the residence while it undergoes renovation. The big benefit of up to $250,000 principal-residence tax-free profits (up to $500,000 if you're married and file a joint tax return) every 24 months is worthwhile.

DEAR BOB: About 15 years ago, my parents gave their townhouse to me. I occupied it for a few years but then moved out and have been renting it to tenants. I take annual depreciation on my Schedule E income tax return. What would be my appropriate method to establish the depreciable basis for this property? -- John N.

DEAR JOHN: When your parents gave that property to you 15 years ago, you took over their probably low adjusted cost basis. That was your depreciable basis (minus your share of the land value, which is non-depreciable). When you decide to sell the townhouse, you will have a huge capital gain because your basis is low, especially after deducting depreciation.

Of course, you can avoid paying capital gain tax by making an Internal Revenue Code 1031 tax-deferred exchange for another rental property of equal or greater market value and equity. Consult a tax adviser for details.

DEAR BOB: Regarding senior citizen reverse mortgages, why does the FHA charge a 2 percent fee if the money borrowed is mine since it comes from my home equity? Why do my heirs have to pay it after I am deceased since the borrowed money is my equity? -- Sylvia J.

DEAR SYLVIA: The 2 percent FHA senior citizen reverse mortgage loan fee pays the mortgage lender for originating your reverse mortgage. You don't expect the lender's representative to work for free, do you?

When the lender loans you money on your reverse mortgage, presuming you are 62 or older, whether you select the lifetime monthly income payments, credit line (except in Texas), or a lump sum, the lender expects to earn interest on that loaned money you receive.

No repayment is due on the reverse mortgage principal and accrued interest until the senior citizen sells the home, moves out for longer than 12 months or dies. Then the reverse mortgage "matures" and its balance must be paid from the sales proceeds. The remaining home equity goes to you or your heirs.

Because a reverse mortgage is "non-recourse," you or your heirs never have any personal liability for repayment even if you live to 120.

If your heirs want to keep your home, they can pay off the reverse mortgage by refinancing.

DEAR BOB: What are the benefits and tax consequences for transferring title to one of my adult children for a rental property? I bought the property in 1992 for $78,000 and converted it to a rental in 1999. It is worth about $288,000. Will I have to pay any gift tax? -- Claude R.

DEAR CLAUDE: You probably won't have to pay gift tax. Because your real estate gift to your adult child exceeds the $11,000 annual gift tax exemption per donee, you must file a federal gift tax return. No federal gift tax will be due if you have not given away more than $1 million in non-exempt lifetime gifts. However, you will be creating a capital gain tax problem for your donee. The reason is the donee takes over the donor's adjusted cost basis, which, in your situation, is extremely low because you have been deducting rental property depreciation.

Unless there is a compelling reason to give away your property now, your adult child will be in a much better tax position inheriting the property at its stepped-up market-value basis when you die. Then there is no capital gain tax to consider.

DEAR BOB: My home is located near the clubhouse in a community of 1,340 homes. Last year, the clubhouse air conditioner was replaced. The new unit, which we are told is the same model as the previous one, is much noisier. It is in excess of 85 decibels at the unit and 58 to 61 decibels on our patio. It can be heard inside our homes even with the windows closed. All of the homeowners adjacent to the clubhouse have complained to the homeowners association board of directors. They refuse to act because the noise affects only a few homeowners. How should we proceed? -- Les H.

DEAR LES: The situation you describe is a "private nuisance." That means it affects only a few nearby residents. Your legal remedy is a lawsuit against your homeowners association to abate the private nuisance. If the noise affected many homeowners, then it would be a "public nuisance" with different legal remedies.

DEAR BOB: My father died in 1982. He placed his assets in a testamentary trust for his wife. She died in September 2004. Part of the estate included rental property. Do the heirs have to pay capital gains tax on the sale of the rental? If so, how will the cost basis be determined? Our lawyer says each heir (there are more than 10) is responsible for his share of the capital gains tax on the property. Is there any way to avoid this tax? -- Angelo M.

DEAR ANGELO: You need a second opinion from a tax adviser, not the attorney for the estate. If the 10 heirs inherited the real estate from your late mother, you should receive a new stepped-up basis to market value on the date of her death.

The only capital gain would be any net sales proceeds received that exceed that stepped-up valuation. If the 10 heirs received equal shares, then each heir owes 1/10 of the capital gain tax. However, that testamentary trust muddies the situation. Perhaps the heirs are not entitled to a stepped-up basis on the inherited real estate. That's why you and the other heirs need to consult a tax adviser to review the documentation.

DEAR BOB: My husband and I bought our townhouse in 2000. We had been planning to relocate to Florida in June 2006 to live near my family. However, my husband has now decided we should sell our townhouse as-is and move by the end of September 2005. He fears the housing market will collapse if we wait until the summer of 2006. I had intended to do the following fix-up: repaint the interior; re-carpet, as the carpeting is badly stained, worn and burned in some areas; replace the vanities and medicine cabinets; and replace the garden edging. These are basically minor cosmetic improvements. I believe our selling "as is" will cause us a loss greater than the increase in market value during the next year. Your opinion? -- Nancy L.

DEAR NANCY: Nobody can predict what might happen to home prices during the next year. The current market is strong in most communities, but there is no guarantee of that continuing.

If mortgage interest rates rise substantially, that will cool the current home sales market quickly. I suggest you go ahead with those minor fix-up improvements now so you can enjoy them. Then it's up to you and your husband to decide the best time to sell. Sorry, I don't settle family disagreements!

DEAR BOB: My mother recently died and I am her only son. She left me her house, which is rented. I have been taking care of her for the past 10 years, and the past two years she was in a nursing home. I am about to meet with the lawyer to have the house title transferred into my name. My problem is that my own health is not good. I want to leave the house to my partner of 35 years. I know the laws are not good for gays, so what can I do to make sure he gets the house? -- Dick N.

DEAR DICK: After title to your mother's house is transferred to you, my suggestion is to create a revocable living trust and deed the house title into your living trust. There are many advantages. The primary advantage is living-trust assets pass, upon the trustor's death, to the named beneficiaries without probate court costs and delays. An equally important secondary advantage is, if you become incapacitated, such as by a severe stroke or Alzheimer's disease, your named living-trust successor trustee (presumably your partner) can manage your living-trust assets, even selling them if necessary for your care.

Your living trust can provide for the house to pass after your death to your partner without probate court interference. However, you also need a "pour-over" will just in case you forgot to include any other major assets in your living trust.

DEAR BOB: My roommate and I have been talking about buying the two-bedroom condo that we have rented for about a year. The landlady is rich and really doesn't need our condo for the rent income. She inherited it. We try to bother her as little as possible, as our rent is low. A friend is a mortgage broker and he says my FICO credit score is 740 but my roommate's FICO score is only 630. My roommate is lukewarm about buying the condo. Although I could afford to buy the condo alone, based on recent sales prices in the complex, I don't want to offend my roommate who is a good friend from college days. What should I do as I am worried if our landlady decides to sell we will have to move out? -- James R.

DEAR JAMES: Unless you and your roommate really want to own the condo together, especially since your credit score is so much better, my suggestion is to talk with your landlady to see if she will sell to you. Maybe she doesn't want to sell so that settles the issue. If she agrees to sell, then you have to decide if you want to buy the condo alone. Because your roommate is lukewarm about buying, why push him or her into a purchase? Partnerships usually complicate matters unless you see some advantage.

DEAR BOB: I have a good job and a FICO credit score of 745, but not much savings or other assets. In other words, I live paycheck to paycheck. I see ads for homes and condos for sale with little or nothing down. I need to buy a place with space for my four dogs. I currently rent a house with a big yard but the landlord refuses to sell. Also, I have two roommates who occasionally drive me crazy. How can I find a home to buy in my situation? -- Martin S.

DEAR MARTIN: Start looking in the areas that interest you. Of course, study the newspaper classified ads. When you find a real estate agent in the vicinity where you want to buy, ask about homes for sale with seller financing.

Many elderly sellers would be thrilled to sell to a responsible buyer like you and carry back the mortgage for retirement income. Personally, I've bought many houses from senior citizens who needed retirement income secured by a mortgage on the residence they sold to me. Many begged me later not to refinance.

Your big difficulty is finding a home with enough space for those four dogs. That's as big a problem as locating a seller who will finance your purchase.

DEAR BOB: I have owned a Florida beachfront timeshare for more than 20 years. I want to sell it, but last year the complex was damaged in the hurricanes. My timeshare has a large special assessment and maintenance fees outstanding. What are my options to get out of this and not pay the outstanding charges? -- Kenneth J.

DEAR KENNETH: Your situation is another example why I do not recommend timeshares. It appears you stopped paying the maintenance fees and the special assessment.

Because your timeshare probably has little or no market value, you might offer to quit-claim deed your timeshare to the homeowners association just to get rid of it. However, most timeshare associations refuse to accept such deeds, especially if the complex has hurricane damage and unpaid fees.

Your biggest risk is the association might sue you for unpaid charges, obtain a judgment, and then try to ruin your credit if you don't pay. Consult a Florida lawyer experienced in timeshare law.

DEAR BOB: Several years ago, my mother died. I co-inherited her house with my step-brother, who is 14 years younger than me. We have nothing in common. He somehow manages to survive without a job or a permanent place to live. I hear from him maybe once a year. At the time of our mother's death, the house was rented to a family, which still lives there today. I collect the rent and pay the bills, as I live nearby. I am tired of managing this rental, which often needs repairs that I have paid out of my pocket. How can I get my reluctant co-owner step-brother off the title so I can sell the house to the tenants who want to buy? -- Merv W.

DEAR MERV: Unless your step-brother voluntarily agrees to either sign a quit claim deed to you, or to sell the house and split the net sales proceeds, your legal alternative is to sue him in a partition lawsuit. That means you ask the court to order a sale of the house, with the sale proceeds divided equally.

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.

(c) 2005, Inman News Service