I believe you are referring to a section of the California Contractors License Law and Reference book that allows close family members the ability to continue on with an existing license without testing. Here is an excerpt:
27. Are there any additional circumstances under which a
waiver of an examination may be requested?
Yes, at the Registrar’s discretion, an exam waiver
may be granted if the qualifying individual meets the following criteria:
The qualifying individual is a member of the immediate family of a
licensee whose individual license was active and in
good standing for five of the seven years immediately preceding the a
pplication. The qualifying individual must have been actively engag
ed in the licensee’s business for five (5) of the previous se
ven (7) years and be applying in the same classification, and the license must be required
in order to continue the operations of an existing family business in
the event of the absence or death of the licensee."