Cal. Code Regs. tit. 18 § 13724.2
If all the premiums on a policy of insurance issued upon the life of a husband or wife and payable to the surviving spouse have been paid from the insured's separate funds, and the insured had retained the legal incidents of ownership in the policy until death, $50,000 of the proceeds of the policy are excluded by reason of the insurance exclusion (see Section 13723) and the proceeds, being separate property of the decedent, are also included in computing the surviving spouse's marital exemption under Revenue and Taxation Code Section 13805 as it applies to decedents dying prior to January 1, 1976, and to the marital exclusion under the amendment to Revenue and Taxation Code Section 13805, effective as to decedents dying on or after January 1, 1976 (see Section 13805). However, in calculating the one-half of the clear market value of the decedent's separate property (factor (1)) for the purpose of determining the maximum marital exemption or exclusion to which the spouse is entitled, the amount of the insurance proceeds must be reduced by the $50,000 insurance exclusion.
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 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 other separate property having a value of $100,000 all of which he left to B. B would be entitled to the $50,000 insurance exclusion and a marital exemption or exclusion in the sum of $125,000. The marital exemption or exclusion is computed as follows:
| $200,000 | Insurance proceeds |
| 50,000 | Less insurance exclusion |
| $150,000 | |
| 100,000 | Other separate property |
| $250,000 | |
| $250,000 | = $125,000 |
| 2 |
| $200,000 | Insurance proceeds |
| 100,000 | Other separate property |
| $300,000 | Total received by wife |
| 50,000 | Less insurance exclusion |
| $250,000 |
Factor (1) is lower, so $125,000 is the marital exemption or exclusion.
Cal. Code Regs. Tit. 18, § 13724.2
Note: Authority cited: Section 14740, Revenue and Taxation Code. Reference: Section 13724, Revenue and Taxation Code.