Your Mortgage : Benefits of Putting Home in a Living Trust : Inheritance: Revocable trusts avoid costly, time-consuming probate of estates.

Single people who buy a home and apply for a mortgage almost always take title to the property as sole owner. And as we mentioned last week, married people almost automatically take title as joint tenants.

Yet, with a little thought and the help of an attorney or financial planner, single people and married couples can reap huge financial benefits by taking title to their home by using a revocable living trust.

“It’s the best way for just about anybody to hold title to real estate,” said Steven A. Sokol, one of the California Assn. of Realtors’ lawyers.

There are two basic types of trusts.

People are most familiar with “testamentary trusts”--the type of trust that’s created upon the death of someone who has already written a will.

A living trust is created while you’re still alive. Most living trusts are “revocable,” meaning you can amend or revoke the trust whenever you wish.

To create the trust, you deed your house and any other assets you wish to yourself as trustee. If you’re married, both you and your spouse would typically be named trustees.

At the same time, you name an alternate trustee--your adult child, an investment adviser or someone else--who would take control of the trust should you become incapacitated or die. A “trust agreement,” which is much like a will, must also be drawn up.

Since you’re the initial beneficiary of the trust as well as its initial trustee, you retain complete control of the property as if a trust wasn’t involved.

Holding title to the property as a living trust provides several advantages.

“First, your heirs will avoid thousands of dollars and save lots of time because your estate can avoid probate court when you die,” Sokol said. “Instead, your alternate trustee will simply take over control of the estate’s assets.”

California and most other states allow probate attorneys to charge statutory fees based on the estate’s value. Depending on the state, these fees can range from 5% to more than 20%.

Probate fees are negotiable. But Philip Kavesh, a partner in the Torrance-based financial planning firm of Kavesh & Gau, said the typical probate fee on a California estate valued at $300,000 is $14,300.

“Then the probate court has the power to grant additional, or ‘extraordinary,’ fees if the lawyer or executor has to sell a lot of assets, prepare the federal estate tax return, manage the deceased’s business or do something else that is out of the ordinary,” Kavesh said. “That can add thousands more to the probate bill.”

Another advantage to living trusts is that you minimize the chance that your family will have to ask the court for a conservator or guardian if you become incapable of running your affairs. “Again, the alternate trustee would automatically take over and you’d save thousands of dollars in legal costs,” Sokol said.

Kavesh also points out that a living trust can protect the privacy of both you and your heirs after you’re gone. That’s because your assets won’t be listed in probate-court records, which are open to public inspection.

One of the biggest problems with setting up a living trust is its costs. “It can cost between $500 and $3,000, depending on how much work and property is involved,” Kavesh said. “But still, that’s a drop in the bucket compared to what your estate might have to pay in probate fees after you die.”

Another potential drawback is all the paper work that can be involved. Forming a trust is a relatively simple task if you have only a few properties and just a few bank and brokerage accounts, but it can be a nightmare if you’ve got dozens of different investments.

David E. Burton, a Brentwood attorney who specializes in estate planning, said that another problem is that many people who form living trusts think that it will automatically relieve their heirs of all inheritance tax on their estates.

Burton said that although a married couple could design a living trust or even a will in such a way that they can each transfer up to $600,000 to their heirs--for a total of $1.2 million--their heirs will still have to pay a minimum 30% tax on anything above that amount.

In addition, recent changes in the probate code in California and some other states allow relatively simple probate procedures--known as “summary probate”--for small estates and the estates of married people in which assets pass to a surviving spouse.

“If your estate qualifies for summary probate, you probably can’t justify spending the money and time it takes to set a trust up,” said Stephen Kramer, a partner in the Century City-based law firm of Gold, Marks, Ring & Pepper.

For example, California law allows estates worth $60,000 or less to be passed to heirs after a waiting period of about one to six months.

The catch is that, in a few instances, the summary process considers the value of the home before allowing for the mortgage or other liens on the property.

So, even if you owed $150,000 on a home that was worth $200,000 when you died, you might not be able to use the summary procedure because the estate would be valued at $200,000.

Ironically, people who set up a living trust in the hopes of avoiding probate costs often wind up paying them when--had they simply held title as joint tenants--no probate would have been needed.

“Let’s say that you and your wife hold title to your home as joint tenants instead of using a living trust,” Burton said. “Your wife dies, so everything automatically goes to you. No probate is needed.

“On the other hand, let’s say the two of you have got a trust but you don’t have all of your assets in it. When she dies, the fact that there are assets outside the trust require you to go to probate.

“So, you wind up paying the probate costs that you had specifically sought to avoid when you formulated the trust.”

If setting up a living trust sounds like it might make good sense, you’ll want to visit both a financial planner and a knowledgeable attorney for more details.

You might also consider reading up on estate-planning issues.

One of the better books is “Plan Your Estate,” by attorney Denis Clifford. It can be ordered by sending a check for $19.07, including postage and handling, to Nolo Press, 950 Parker St., Berkeley, Calif. 94710.

The State Bar of California also publishes a helpful free pamphlet. You can get a copy of “Do I Need Estate Planning?” by sending a self-addressed, stamped, business-sized envelope to State Bar Pamphlets, 555 Franklin St., San Francisco, Calif. 94102.