The big problem is grandma's status as a Medicaid recipient. If she is getting Medicaid now, unlikely since she still owns a house, she would lose it the day your purchase $$ hits her bank account. Unless your aunt and Mom own some of the house, it is no business of theirs how much you pay. At some point Medicaid is going to review the amount you paid to be sure there was not some sort of lowball sale. Grandma's Medicare will pay 80% of her costs and then the Assisted living facility will take he other 20% from her bank acct until it is all gone. THEN, G'ma is eligible for Medicaid.
Get a lawyer who specializes in elder law. Then do what s/he says.
I don't know how the Medicaid program (a federal program that is administered in each state by a state agency) works in West Virginia, but Medicare and Medicaid are two different programs. Medicare is supposed to pay for medical care expenses, NOT for the cost of living in an assisted living facility or skilled nursing facility. Medicaid, on the other hand, WILL pay for the cost of living in an assisted living facility or skilled nursing facility IF the facility in question is not a strictly "private pay" facility. But in order to qualify for Medicaid benefits, a person seeking those benefits has to satisfy applicable eligibility requirements both with respect to his or her assets and with respect to his or her income. Frequently, the person must first "spend down" his or her assets before becoming eligible.
However, as Dem's post suggested (without saying so explicitly), a person's primary residence is typically an exempt asset, meaning that it is not counted for purposes of determining whether he or she has assets with an aggregate value below the maximum allowable for Medicaid eligibility. In order to ensure that his or her principal residence is treated as an exempt asset for Medicaid eligibility purposes, a person entering an assisted living facility typically fills out and signs (at the outset), a "Statement of Intent to Return" to his or her principal residence, even if it is objectively certain that no such return will ever occur. Did your Grandma do this? How long has she been in the assisted living facility? You should ask one of the administrators there. If the facility is not a "private pay only" facility, someone there will be up to speed on issues like this.
if your Grandma is seeking to at some point qualify for Medicaid eligibility, then selling her principal residence (i.e., converting it to cash, which is not an exempt asset) is probably not the best way to go. But the asset eligibility maximum for Medicaid is low enough that many people will never qualify, so Medicaid eligibility planning may be a non-factor for your Grandma in any event.
From my perspective as an estate planning attorney, the issue that is likely to be
more relevant is the capital gain issue. Specifically, whether your Grandma should consider holding onto her home and passing it on to her heirs via postmortem gift, rather than selling it to you while she is still alive. This depends on what her current tax basis in the home is, what her age is, whether she has other assets upon which to live, and (if not) whether your parents and your aunt might be able and willing to loan her money.
If your Grandma has owned her home for an appreciable period of time, it has probably appreciated considerably in value, which would mean its current fair market value is considerably higher than her tax basis in the home, meaning she will be facing capital gains taxation as a result of its sale. She can exclude $250,000 of capital gain under IRC Section 121, but if her gain would be more than that, perhaps you can structure things so that the home passes by inheritance rather than sale. This would allow her to avoid the capital gains hit, and also allow her heirs to get a "stepped up basis" in the property under IRC Section 1014 (i.e., a basis equal to whatever its value is on the date she dies). If they get a stepped up basis, they could in turn sell it to you with zero capital gain. But that takes some tax planning.
Bottom line: You should consult with an estate planning attorney first and foremost. A lot of them have at least some working knowledge of Medicaid planning rules.