First of all, if your mother has POA over your dad's affairs and if IRA money is used to pay down the mortgage, you will have documented proof that the Money is not being move around but are"actually" paid for mortgage, which is your mother's primary residence and thus, it should not pose any problem for her. There are certain assets that are exempt and this is one of them. http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P12_3045
Secondly, with regard to your mother's IRA, the principal balance is exempt when her assets are counted. Retirement accounts - (e.g. IRAs) the principal balance in an IRA is an exempt asset as long as the individual is taking regular income distributions from their IRA account. Your mother would still be eligible for the allowance, spousal allowance that you are referring even if she has IRA money. However, if she gifts, she herself will have to wait for 60 months just in case if she needs to apply herself for medicaid.
I hope this helps...
Sorry to hear about your father's health.
Please note that your mother, i.e. the "Surviving Spouse" has much flexibility as to how to deal with the IRAs or 401-Ks. She has a choice to do any of the following:
1. Rolling the account over into the surviving spouse's own retirement account
2. Electing to continue to treat the account as the deceased spouse's account
3. Funding the account into the A or B Trust established in the deceased spouse's estate plan -- If applicable.
In my opinion, the option No. 1., i.e. to rollover the account into her own account should be beneficial as all the deferred taxes would continue to remain deferred.
You may have full reference of this at http://wills.about.com/od/howtoavoidprobate/a/deathandretire.htm