No, it will not be differentiable in the whole ball. To see this, let $u$ be the zero function and $g$ be nearly anything nonnegative and not identically zero in $K$. For example $g=1$. Then recall Hopf's lemma.
This will also work to show that differentiability fails at any point on the boundary of $K$, at which $g$ achieves its maximum (on the whole of $K$).
However, it will be $C^\alpha$ in the ball, which is the last question you stated. This follows from the smoothness of $g$ and Holder estimates for $u$. For this you also need something about $K$ itself being smooth of course-- all hope is lost if the boundary of $K$ is irregular.