Cal. Code Regs. tit. 18 § 13724.1
If the premiums on a policy of insurance issued on the life of a deceased spouse and payable to the surviving spouse have been paid partly from community funds and partly from separate funds, and the decedent had retained the legal incidents of ownership in the policy until death, one-half of the proportion of the insurance proceeds which is community is excluded as community belonging to the surviving spouse (see Revenue and Taxation Code Section 13551). In addition, $50,000 of the remaining proceeds are excluded by reason of the insurance exclusion (see Section 13723). Also, the separate property in the insurance is taken into consideration in determining the amount of the marital exemption under Code Section 13805 as it applies to decedents dying prior to January 1, 1976, and to the marital exclusion under the amendment to Section 13805, effective as to decedents dying on and after January 1, 1976 (see Section 13805). However, in calculating the one-half of the clear market value of decedent's separate property (factor (1)) for the purpose of determining the maximum marital exemption or exclusion to which the surviving spouse is entitled, the separate property in the insurance proceeds must be reduced by the proportionate share of the $50,000 insurance exclusion which applies to such separate portion of the insurance proceeds.
This regulation may be illustrated by the following example:
EXAMPLE. A at his death in 1976 left a $200,000 insurance policy on his life payable to his wife, B, the premiums on which were paid three-fourths from community funds and one-fourth from A's separate funds, and as to which the legal incidents of ownership were retained by A until his death. In addition A left separate property having a value of $100,000 all of which he left to B. B would be entitled to exclusions totalling $193,750, of which $75,000 is within the community exclusion, $50,000 within the insurance exclusion, and $68,750 within the marital exemption or exclusion. The marital exemption or exclusion is computed as follows:
| 1/4 x $200,000 = $50,000, separate property insurance | ||
| 1/4 x $50,000 = $12,500, proportion of insurance exclusion applicable to separate property insurance | ||
| $ 50,000 | ||
| 12,500 | ||
| $ 37,500 | ||
| 100,000 | Other separate property | |
| $137,500 | ||
| $137,500 | = $68,750 | |
| 2 | ||
| $200,000 | Insurance proceeds | |
| 100,000 | Other separate property | |
| $300,000 | Total received by wife | |
| 75,000 | Less community exclusion | |
| $225,000 | ||
| 50,000 | Less insurance exclusion | |
| $175,000 |
Factor (1) is lower, so $68,750 is the marital exemption or exclusion.
Cal. Code Regs. Tit. 18, § 13724.1
Note: Authority cited: Section 14740, Revenue and Taxation Code. Reference: Section 13724, Revenue and Taxation Code.