Michigan Special Needs Trust Rules (2026) | Complete State Guide

1. 1. Michigan’s Medicaid asset limit is nearly five times higher than most states.
   Most states cap countable assets at $2,000 for Medicaid eligibility. Michigan’s limit is $9,950 (2026) — and it automatically adjusts every year. That’s because Michigan is one of only three states that auto-links its Medicaid asset limit to SSI changes. It’s still not a lot of money, but it gives your family slightly more breathing room than families in other states.
2. 2. You don’t need a second trust just because your child’s income is too high.
   Michigan is a medically needy (spend-down) state — not an income cap state. That means if your child’s income exceeds the limit ($1,305/month for ABD Medicaid), they can still qualify by spending the excess on medical costs. States like Florida, Texas, and Georgia require a separate Qualified Income Trust when income is too high. Michigan doesn’t.
3. 3. Trust income is taxed at a flat 4.25% — far below the federal rate.
   Michigan’s flat income tax applies to trusts at the same rate as individuals. That’s a real advantage — the federal government taxes trust income at 37% once it exceeds about $15,450, so a trust generating $10,000–$20,000 a year in income (common for trusts in the $200K–$500K range) could face a meaningful federal bite. Michigan taxes it at 4.25% across the board. No estate tax, no inheritance tax, no gift tax either.
4. 4. First-party trusts are supervised by the probate court — and the rules are strict. (For first-party SNTs)
   If the trust is funded with your child’s own money (a settlement, inheritance, or back pay), the Michigan probate court maintains ongoing oversight. That means annual accountings served on all interested parties, court approval before any modifications, and potentially a guardian ad litem appointment. It’s more paperwork than a third-party trust, but it protects the beneficiary.
5. 5. Michigan Medicaid estate recovery is limited to the probate estate — but the rules depend on which type of trust you have.
   (For third-party SNTs) — Good news. Because the money in a third-party trust was never your child’s asset, it isn’t part of their probate estate and Michigan Medicaid estate recovery doesn’t reach it. Whatever is left goes to whoever you named as remainder beneficiary. Michigan also recognizes Lady Bird Deeds (enhanced life estate deeds), which transfer real property at death outside of probate — another tool your attorney should know about.
   
   (For first-party SNTs) — Different rule. Because this trust was funded with your family member’s own money, federal law (42 USC §1396p) requires that any funds left in the trust when they pass away must first reimburse Michigan Medicaid for benefits paid during their lifetime. This isn’t estate recovery — it’s a payback clause built into the trust itself. Whatever remains after Medicaid is repaid goes to the family. This is the tradeoff for protecting benefits during your family member’s life.
6. 6. MiABLE accounts come with a real state tax deduction.
   Michigan’s ABLE program lets you deduct up to $5,000 (single) or $10,000 (joint) from your state income tax for contributions to a MiABLE account. That’s money back in your pocket — on top of the tax-free growth and $100,000 SSI exclusion. Not every state offers a deduction this generous.
7. 7. The trust can pay for groceries without reducing your child’s SSI.
   This changed in October 2024. Before that, buying food with trust money cut the SSI check. It doesn’t anymore. Only shelter expenses (rent, mortgage, utilities) still count as In-Kind Support and Maintenance and reduce SSI by up to about $351/month.
8. 8. Your local CMHSP is the gateway to waiver services — and the trust needs to coordinate with it.
   Michigan runs disability services through 46 Community Mental Health Services Programs (CMHSPs) covering all 83 counties. Your CMHSP is the single point of access for Medicaid waiver programs. If the trust pays for services the CMHSP already covers, you’re paying twice. The trust should supplement what Medicaid provides, not replace it. Talk to your case manager.
9. 9. Michigan’s probate law just had a major overhaul.
   The EPIC Omnibus (2024 PA 1), effective February 2024, made sweeping changes — the small estate threshold nearly doubled to $50,000, the guardian asset limit jumped from $5,000 to $50,000, and new trust nondisclosure provisions were added. If your trust or estate plan was drafted before 2024, it may not reflect these changes.
10. 10. Existing trusts can potentially be modified or even terminated if circumstances change.
    Michigan courts have broad authority under MCL 700.7412 to modify or terminate trusts when unanticipated circumstances arise. In the Moss case (2022), the Court of Appeals upheld termination of an SNT after the beneficiary made a remarkable recovery. This is unusual — but it means Michigan law is flexible enough to adapt when life changes.
11. 11. The person managing the trust (the “trustee”) has to account for every dollar — no matter what type of trust you set up.
    Whether you created a third-party trust (funded with your money) or your child has a first-party trust (funded with theirs), Michigan law (MCL § 700.7814) gives your family the right to request a full accounting of how trust money is being spent. This isn’t optional — it’s the law. If a bank, attorney, or family member is serving as trustee and won’t show you where the money is going, that’s a red flag.

From my 15+ years helping families (including my own):

1. Leaving money directly to your disabled child. A well-meaning grandparent names your child in a will or life insurance policy, and even a small inheritance can push them over Michigan’s $9,950 Medicaid asset limit — destroying their SSI, Medicaid, and waiver services. Every dollar meant for your child needs to go through the trust, not to them.
2. Using a first-party trust when a third-party would have worked. First-party trusts require Medicaid payback at death — potentially hundreds of thousands of dollars. Third-party trusts have no payback. If the money is coming from your estate (not your child’s), make sure your attorney sets up the right type. This mistake is expensive and irreversible.
3. Using online templates that fail Michigan probate court review. Michigan’s probate courts have specific procedural requirements for first-party SNTs — Kent County and Grand Traverse County publish detailed checklists. DIY trusts almost always miss something: the Medicaid payback clause, the spendthrift provision under MCL 700.7502, the sole-benefit language. If the trust fails review, the assets are countable and benefits are lost.
4. Making distributions that count as income under BEM 401. Michigan DHHS evaluates trust distributions under Bridges Eligibility Manual 401. Paying cash directly to the beneficiary makes it countable income. Paying for shelter still reduces SSI. Many trustees don’t know about the 2024 food rule change and are either still avoiding food purchases (unnecessarily) or still making cash payments (which DO count).
5. Not coordinating with the CMHSP and waiver system. Michigan’s 46 Community Mental Health Services Programs are the gateway to waiver services. If the trust pays for something the CMHSP already covers — therapy, respite, community living supports — you’re paying twice. The trust supplements what Medicaid provides; it doesn’t replace it. Talk to your case manager before the trustee writes checks.
6. Ignoring Michigan Medicaid estate recovery because it’s “probate only.” Yes, Michigan limits recovery to the probate estate. But if your child also had assets outside the trust at death — a bank account, a car titled in their name — those are fair game. And if they had a long-term care partnership policy, the definition of “estate” expands to include everything. Lady Bird Deeds help protect real property, but the planning needs to be comprehensive.
7. Not updating the trust after Michigan’s recent law changes. The EPIC Omnibus (February 2024) changed estate thresholds and guardian powers. The new Uniform Power of Attorney Act (July 2024) made POAs durable by default. The food/ISM rule changed in October 2024. ABLE eligibility expanded in January 2026. A trust drafted five years ago may be operating under outdated assumptions. Review it.

The best way to avoid these mistakes? Work with an attorney who knows Michigan special needs law. Find Michigan attorneys →

Beyond the Trust: Other Michigan Planning Steps

Guardianship & Conservatorship: When your child turns 18, you may need legal authority for decisions. Michigan uses both guardianship (personal/medical decisions) and conservatorship (financial decisions). Limited guardianship is strongly encouraged — the court must consider the least restrictive option first. Michigan doesn’t yet have an SDM law, but HB 4677 (2025) would create one. Compare your options →
Medicaid Waivers: Michigan’s Habilitation Supports Waiver has ~7,500 slots and the Children’s Waiver Program serves 669 children — contact your local CMHSP to get on the list. Learn about waivers →