A life estate lets you have your house and give it away too. With a life estate, you give your heir the deed, so the property won't pass through probate, but you reserve the right to keep living there. In life-estate speak, the person you give title to is known as the "remainderman." A life estate doesn't prevent you from refinancing or taking out a home equity loan, but you'll need the remainderman's go-ahead.
Borrowing Against Equity
After you set up a life estate, you and the remainderman both have an ownership stake in the property. If you want to borrow against your home equity, you have to get the remainderman's consent. If you deed the house to several people -- all your children, for instance -- every remainderman has to agree, as borrowing puts property they own at risk. In some states, the remaindermen's spouses also have a say. Should even one of them balk, you cannot legally go through with the loan. If they're happy with it, you can borrow against the property.