My sympathies for your loss; I will explain the Medicaid's Estate Recovery process.
Basically money expended by the government for nursing home care is a loan, not a gift, contrary to most people's understanding (most people think it is a benefit after paying taxes for a lifetime). If the decedent had assets, the government will place a lien on those assets in order to recover money spent on the decedent's care.
The state will waive the interest, temporarily, if their is a surviving spouse residing in the home.
As far as gifting a house for less than fair market value, the government has a 60 month look back period, so they can essentially "undo" any transfers that weren't for full value in the past 5 years. However, under limited circumstances a decedent may gift a house without penalty to: ***** ***** who is under age 21 or blind or permanently disabled (at any age); a sibling who has an equity interest in the home and was residing there for at least 1 year prior to the applicant's need for long-term care; or a child of any age who was residing in the home at least 2 years prior to the applicants need for long-term care and who provided care that permitted the applicant to reside at home rather than in an institution.
One can also claim an "undue hardship exemption" - this is typically granted when inheritors have limited income and the estate is their sole income-producing asset .
In such a case then the government will not pursue the property.
I hope this information is helpful as I tried to provide very thorough information, even if it is contrary to what one wished to hear - I have a moral obligation to provide accurrate information. If you found this information useful, kindly rate positively so I receive credit for assisting you.
Thank you - please post any follow up questions here!