I take care of my mother-in-law 24/7 in my home. She wants to pay me (she is financially secure) how does the IRS handle this? Is it legal?

I strongly suggest seeing an eldercare attorney and creating and signing a 'Caregiving Contract'. Get it all straight and out in the open now, you would be surprised at the trouble you can avoid.

My brother, on behalf of my mom, pays me from Mom's pension. At this point, it is considered a gift because it is less than what she is allowed to give us. She's going to be 95 in a few weeks so we're pretty sure her money will hold out until she passes.

I'm sure others can tell you that you can be self-employed and do the quarterly tax reporting, etc. I don't know anything about it but from what little I've read so far that's the best way to go if there is a chance your MIL will eventually have to be in a nursing home on Medicaid because her funds ran out.