Part of the motivation for doing a living trust is usually to avoid probate. Leaving the house outside the trust can defeat this purpose.
However, a homestead in Minnesota is exempt from claims of the owner’s creditors up to a dollar amount established by Minn. Stat. S 510.02. As of July 1, 2014 this exemption amount is $390,000. Also the homestead is exempt from claims by Medical Assistance as long as the owner or the spouse is residing in the home. Putting the home in a living trust destroys these benefits.
If the home is owned as joint tenants with rights of survivorship by a married couple, it is fine to leave the home outside the trust as long as both are alive. On the death of the first it will transfer to the survivor without requiring a probate.
But what to do if the spouse dies or a single individual owns the home. In this situation, the answer may be a Transfer of Death Deed (TODD). If the owner or tenancy owners file a TODD, then the home will be transferred on death to the persons named as grantees in the TODD without requiring a probate. So the home can be left outside the trust but probate is still avoided.
TODD’s are not as flexible as trusts and so naming people as grantees is sometimes not advisable. But the trust can be the entity named as the grantee of a TODD and then all the benefits of the Trust’s flexibility are available and probate is still avoided.