That’s something of a grey area. It may or may not be treated as a uncompensated transfer causing a transfer penalty. You will need to consult with a local elder law attorney to learn how such a transaction is treated in your state. You might also simply ask your state Medicaid agency directly.
Harry S. Margolis practices elder law, estate, and special needs planning in Boston and Wellesley, Massachusetts. He is the founder of ElderLawAnswers.com and answers consumer questions about estate planning issues here and at AskHarry.info.