If she truly only had a life estate, then it would not be counted as one of her assets. However, she must be careful in knowing that it was really truly just a life estate and she had no ownership interest, or else the look-back period of 5 years will cause her to be disqualified for medicaid.
If the house is being sold now, she will be entitled to some of the proceeds based on the value of her life estate. If it is sold before she needs Medicaid, she will have cash, which will be counted as her assets. However, it sounds like she would then use that money to pay for the assisted living for a longer time.
If the house is not sold until next year, after she applies for Medicaid, Medicaid may put a lien on her life estate. If it is sold during her lifetime, Medicaid will seek to recover against her share of the proceeds.
Your grandmother should seek legal guidance on this matter. You can help her locate an elder law attorney in her area by going to the National Academy of Elder Law Attorneys website at www.naela.org.
While I would not typically comment to say that I agree what another attorney has said, in this case you were given two conflicting opinions. I agree with Attorney Hammil's response as it summarizes the current state of the law. A life estate is an asset, countable and/or subject to lien by Medicade. There are ways to accomplish the same result, but in that her Medicade application is imminent it would not be of much use, unless your grandfather was still alive. Your best bet would be to contact an attorney concentrating in the area of Elder Law.