We cannot comment on how Wisconsin will apply the law, but in most instances your mother cannot gift any of her share of the proceeds of the house sale. (Exceptions would include gifts to any of her children who may be disabled or into trust for the sole benefit of anyone who is disabled and under age 65.) On the other hand, your mother can spend her funds for her own benefit. This can include prepaying for her funeral if she has not already done so and prepaying her taxes. She can pay the IRS and the Wisconsin tax authorities an estimate of what she will owe for the sale of the house. But she can only pay for her share, not for any taxes that may be due on capital gain attributable to her children. An accountant should be able to advise on this.
To find a qualified elder law attorney in Wisconsin, click here.
For more on the rules for spending down assets to qualify for Medicaid, click here and here.