(a) In General. All of the property
transferred to the spouse of a decedent who died on or after January 1, 1981 is
excluded from the inheritance tax, except where the spouse receives a limited
power of appointment over any portion or all of the decedent's property. The
spouse of a decedent who died on or after January 1, 1976 and before January 1,
1981, is entitled to a marital exclusion and the spouse of a decedent who died
on or after April 26, 1950 and before January 1, 1976, is entitled to a marital
exemption, either of which applies with respect to property received by the
spouse from the decedent pursuant to any transfer subject to the Inheritance
Tax Law equal in amount to one-half of the clear market value of the decedent's
separate property. However, as to decedents who died on or after January 1,
1976 and before January 1, 1981, the exclusion will not apply with reference to
separate property which has been converted from community or quasi-community
property (see Revenue and Taxation Code Section
13805(b)
as amended and effective January 1, 1976).
(b) Marital Exclusion as to Decedents Who
Died on or after January 1, 1981. All of the property transferred to the spouse
of a decedent who died on or after January 1, 1981 is excluded from inheritance
tax, except that if a limited power of appointment over any portion or all of
the decedent's property is given to the spouse of the decedent, the value of
such property is subject to the tax. Where a limited power of appointment is
given by a decedent to the decedent's spouse, the value of any interest given
other than the limited power of appointment itself is excluded from the tax.
For example, if a surviving spouse receives a life estate plus a general power
of appointment over the remainder in one-half of the decedent's estate and a
life estate plus a limited power of appointment over the remainder in the other
one-half, the value of the life estate and general power of appointment in
one-half of the estate and the value of the life estate in the other one-half
are excluded and the value of the remainder in the one-half of the estate
subject to the limited power of appointment is subject to the tax.
(c) Determination of Amount of Marital
Exclusion or Exemption as to Decedents Who Died Before January 1, 1981. The
exemption or exclusion requires the calculation of the following two factors
the lower of which is the dollar amount allowable:
(1) One-half of the clear market value of the
decedent's separate property, and
(2) The amount of property received by the
surviving spouse which is not excluded (not excluded as community or
quasi-community property, the insurance exclusion, etc.)
There is no limitation on the form of transfer to the
surviving spouse in order to include the transfer in the calculation of factor
(2). Thus life estates are counted in determining the amount of property taken
by the surviving spouse.
As to computation of the marital exemption or exclusion
involving proceeds of insurance on the life of a deceased spouse payable to the
surviving spouse, see Sections
13724.1 and
13724.2.
(d) Allowance of Exclusion as to Decedents
Who Died on or After January 1, 1976 and Before January 1, 1981. With reference
to transfers by decedents who died on or after January 1, 1976 and before
January 1, 1981, the amount determined under (c) above is excluded from the sum
of net transfers subject to the Inheritance Tax Law and passing to the
surviving spouse before application of the specific spousal exemption or tax
rate brackets, thus reducing the amounts otherwise taxable in the higher tax
rate brackets. The provisions of subdivision (c) may be illustrated by the
following example:
EXAMPLE. A married person died in 1976 leaving an estate
which consisted entirely of separate property having a clear market value of
$150,000 to the surviving spouse. One-half of the separate property ($75,000)
is excluded from the tax. The balance of $75,000 is taxable subject to the
$60,000 specific exemption (Revenue and Taxation Code Section
13801).
The $60,000 specific exemption is applied to the first and second rate brackets
as to $50,000 and to $10,000 in the third rate bracket leaving $15,000 taxable
at the third bracket rate:
| $150,000-- |
Separate property
passing to spouse |
| 75,000-- |
Marital exclusion
(Revenue and Taxation Code Section
13805,
effective January 1, 1976) |
| 60,000-- |
Specific exemption
(Revenue and Taxation Code Section
13801,
effective January 1, 1976) |
| 15,000-- |
Taxable at 6 percent (third rate
bracket) |
= $900
|
|
Total Tax $900 |
(e)
Deduction of Marital Exemption as to Decedents Who Died Prior to January 1,
1976. The marital exemption of surviving spouses of decedents who died prior to
January 1, 1976, and on or after April 26, 1950 is deductible from lower tax
rate brackets pursuant to Revenue and Taxation Code Section
13403
as then applicable which requires the property in excess of the exemption to be
taxed in the rate brackets in which it would have been taxed had there been no
exemption. These provisions may be illustrated by the following example:
EXAMPLE. A married person died in 1974 leaving an estate
which consisted entirely of separate property having a clear market value of
$150,000 to the surviving spouse. The marital exemption of one-half the
separate property ($75,000) and the $5,000 specific exemption (Revenue and
Taxation Code Section
13801
prior to January 1, 1976) are applied to the first and second rate brackets as
to the first $50,000 of the total exemptions allowable. The balance of the
allowable exemptions ($30,000) is applied to the third rate bracket leaving
$20,000 taxable in the third rate bracket and $50,000 taxable in the fourth
rate bracket:
| $150,000-- |
Separate property
passing to spouse |
| 75,000-- |
Marital exemption
(Revenue and Taxation Code Section
13805
prior to January 1, 1976) |
| 5,000-- |
Specific exemption
(Revenue and Taxation Code Section
13801
prior to January 1, 1976) |
| 20,000-- |
Taxable at 6% (third rate bracket)
= |
$1,200 |
| 50,000-- |
Taxable at 8% (fourth rate bracket)
= |
4,000
|
|
Total Tax $5,200 |
(f)
Exclusion Inapplicable to Separate Property Converted from Community or
Quasi-Community Property.
(1) For the purpose
of Revenue and Taxation Code Section
13805(b)
applicable to decedents who died on or after January 1, 1976 and before January
1, 1981, "conversion" includes any transaction or agreement between spouses
which transforms property from community property or quasi-community property
(including property subject to Probate Code Section 201.5) into a separate
property status other than by gift from one spouse to another. The following
are examples of "converted" property:
(A) A
partition or equal division of community property or quasi-community property
(whether by undivided shares or by division in the agreement so that each
spouse receives definite assets of total equal value);
(B) A transfer of property from community
property or quasi-community property into another form of co-ownership, wherein
the surviving spouse can claim by contribution (other than under Revenue and
Taxation Code Section 13672); or otherwise that the property is other than
community property or quasi-community property;
(C) An agreement (either before or after
marriage) that future earnings or acquisitions which would otherwise be
community property or quasi-community property shall be shared by the spouses
as their separate property;
(D) A
change in form of ownership that results in the rents, issues and profits
therefrom being held as separate property, which, but for the change would have
been community or quasi-community property;
(E) Property which is "converted" within the
meaning of Revenue and Taxation Code Section
13805(b)
includes not only the property so converted, but also property acquired by the
decedent in exchange (by one transaction or a series of transactions) for such
separate property acquired by conversion, and includes property which was
converted before or after January 1, 1976.
(2) If the value of the separate property
acquired by the decedent as a result of a conversion (as provided in paragraph
(1) above) did not exceed the value of the separate property thus acquired by
the surviving spouse, the entire value of such separate property thus acquired
by the decedent and its proceeds including rents, issues and profits shall be
considered, for the purpose of Revenue and Taxation Code Section
13805(b),
to be converted property not qualifying for marital exclusion under Revenue and
Taxation Code Section
13805(b).
If there is an unequal division so that one spouse receives more than one-half
of the property which was transferred from community or quasi-community
property into separate property, property held by each spouse is treated as
converted property to the extent that the values (as of the date of the
transfer) are equal.
EXAMPLE (1). At the date of conversion, spouses divided
$300,000 of community property (or quasi-community property) equally, $150,000
each. At the date of death, the deceased spouse's interest is valued at
$180,000. The $180,000 is converted property and does not qualify for the
marital exclusion.
EXAMPLE (2). At the date of conversion, spouses divided
$400,000 of community property (or quasi-community property) giving the
deceased spouse $300,000 and the surviving spouse $100,000, the values were the
same at the date of death. Therefore, the converted property is $100,000 and
$200,000 qualifies for the marital exclusion which will be a maximum of
$100,000.
(3) The exclusion
provided under Revenue and Taxation Code Section
13805(a)
is not available to a conversion of quasi-community property, including
property subject to Probate Code Section 201.5, irrespective of whether the
deceased spouse or the surviving spouse was the acquirer within the meaning of
Probate Code Section 201.5. Therefore, if either spouse makes a transfer of
quasi-community property (as defined in Revenue and Taxation Code Section
15300) so as to effect a conversion as provided in paragraphs (1) and (2)
above, the one-half held by the decedent as his or her share of such property
shall be treated as converted property.
