Medicaid Planning for Michigan Families: Protecting Your Assets from Long-Term Care Costs

According to the U.S. Department of Health and Human Services, approximately 70% of people who reach age 65 will need some form of long-term care during their lifetime. The average duration of long-term care is 3 years — but many people need care for 5, 10, or even 20 years.

In Michigan, the costs are staggering. A private room in a nursing home costs an average of $9,000–$12,000 per month. Assisted living facilities typically cost $3,000–$6,000 per month. Home health aide services cost $25–$35 per hour. Without a plan, a single health event can rapidly deplete a retirement portfolio that took decades to build.

Medicaid is a joint federal-state program that pays for long-term care for individuals who meet certain income and asset requirements. In Michigan, Medicaid will pay for nursing home care for individuals who have limited income and assets — but the rules are complex and the application process is rigorous.

To qualify for Medicaid in Michigan, a single individual generally cannot have more than $2,000 in countable assets. For married couples, the community spouse (the spouse who is not in the nursing home) can keep a 'Community Spouse Resource Allowance' of up to approximately $154,140 (2024) plus the family home.

Assets that are 'exempt' from Medicaid's asset limit include: the primary residence (up to a certain equity limit), one vehicle, personal belongings, and certain prepaid funeral arrangements.

Medicaid has a 5-year 'look-back' period — meaning that when you apply for Medicaid, the state will review all asset transfers made in the 5 years prior to your application. If you transferred assets for less than fair market value during this period, Medicaid will impose a 'penalty period' during which you are ineligible for benefits.

The penalty period is calculated by dividing the total value of improper transfers by the average monthly cost of nursing home care in Michigan. For example, if you transferred $200,000 in assets within the look-back period and the average monthly cost is $10,000, you would be ineligible for Medicaid for 20 months.

This look-back rule means that Medicaid planning must begin well in advance — ideally 5 or more years before you anticipate needing care.

A Medicaid Asset Protection Trust (MAPT) is an irrevocable trust designed to protect assets from Medicaid estate recovery while allowing the grantor to continue benefiting from those assets during their lifetime. The most common use of a MAPT is to protect the family home.

Here's how it works: You transfer your home to the MAPT, which is an irrevocable trust. You retain the right to live in the home for the rest of your life (a 'life estate'). Because the home is owned by the trust — not by you — it is not counted as a Medicaid asset after the 5-year look-back period has passed. At your death, the home passes to your beneficiaries according to the trust's terms, without going through probate and without being subject to Medicaid estate recovery.

A MAPT is a powerful tool — but it requires careful planning and must be established at least 5 years before you apply for Medicaid. It also has important income tax implications that must be considered in coordination with your tax advisor.