“Burn down” of funds in Michigan

My 80 year old dad died a few weeks ago while my 80 year old mom was in a skilled nursing/rehabilitation facility (broken leg). Without his SSI and VA benefits (he wasn’t at 100%) she’ll only have $1200/mo. income. I know her SSI will adjust some but it sounds like she’ll qualify for Medicaid Assisted Living or Long Term Care.

We need Medicaid to cover the long term care because private pay is 5k+ per month, she can’t go home without someone with her 24/7 (8k+ per month) and my house isn’t laid out in a way that will support her needs (unless we do some serious demo and remodeling and that won’t happen as fast we we need it too).

Here’s where I’m struggling (for today anyway) my dad had a small life insurance policy of 20k. My mom was the primary beneficiary and I was the contingent beneficiary so she gets it all. Which is fine but I’m told I need to spend all but 9k and it can ONLY be for her (I’m her POA). It can’t be gifted to me or anyone else, it can’t go towards her car because she’s not able to drive right now and it can’t go towards her rent because she’s won’t be living in the house.

Is there a way around this? Do I wait to file the claim?