If you inherit the house, it's perfectly legal for your parents to set conditions on you taking ownership. Some conditions won't hold up in court -- a requirement that you break the law, for instance -- but if your parents give you ownership of the home as long as you let your sibling live there rent-free, you might have to let her. Some lawyers warn that setting conditions can complicate a simple will, especially if conditions develop that your parents didn't anticipate, such as your sibling's desire that a spouse move in, too.
One way for someone to stay on a property he doesn't own is that the owner gives him a life estate, a guarantee he can stay there until he dies. If you inherit a house with a life estate attached, the life tenant has a legal right to keep living there. Usually a life estate requires the tenant maintain the house and pay insurance and property taxes on it. At his death, or if he decides to leave, you take possession.
Your sibling also could retain the right to live in the house if your parents placed the house in a special needs trust. These trusts manage the affairs of individuals whose mental or physical disabilities make it impossible to go it alone. If the trust owns your house, even though your sibling lives there, it doesn't affect his qualifications for government assistance. Even if he doesn't need assistance, the trust may handle homeownership responsibilities that your sibling isn't competent to oversee.
Even if your parents' arrangement for your sibling is perfectly legal, it may come as a shock if they didn't tell you about it. In some cases, you may believe that your sibling used undue influence: If she was your mother's caregiver, for instance, she may have been able to pressure your mother into putting conditions in the will. Proving undue influence is difficult, but there are some signs -- for example, your parent completely rewrote the will, or your sibling initiated the push to have the will changed -- that might indicate the will is invalid.