Unless you're a stock market genius, you're probably still reeling from the losses you've suffered over the past two years. Yet while the market may not be kind enough to let you claw back all those big drops in the stocks you own, there is something you can do to make sure you don't lose even more of your money to a different threat: the IRS.

Not a feel-good moment
Unfortunately, the topic that can help your family avoid another financial catastrophe isn't one that anyone feels comfortable talking about. For many people, estate planning is the last thing they want to deal with -- and too often, they procrastinate so long that they never take the simple steps that could have saved them thousands or even millions of dollars.

But even though no one likes to dwell on the potential consequences of their own death, the stakes are too high to put estate planning on the backburner for long. Currently, the estate tax rate clocks in at a whopping 45%.

Bear in mind, though, that not everyone has to pay the estate tax. Right now, everyone is entitled to an estate tax exemption of $3.5 million. So, if your assets are worth less than that when you die, then none of your estate will be subject to federal estate taxes.

A scary future
Yet, before you scoff at the idea that you could ever have a taxable estate, consider a couple of things. First, even if you don't have a $3.5 million net worth today, you might well have an estate-tax problem down the road. Even though your major assets, such as homes and investments, have probably seen their values head south in recent years, they'll eventually recover and return their upward trajectory.

More importantly, the estate tax is poised to become a much bigger problem in a couple of years. If Congress doesn't take action, then in 2011, estate tax laws will become much more stringent -- including a maximum rate of 55% and a much lower exemption amount of $1 million.

The impact on your investing
Let's take a closer look at that 55% figure. It means that you could pay more in taxes than your family would get to keep. And it could ravage the effective returns on your stock portfolio. Consider just how much impact the estate tax can have on long-term investments in stocks like these:

Stock

If You've Owned It This Long:

Then Your Pre-Tax Avg. Ann. Return Is:

But Your Avg. Ann. Return After Estate Tax Will Be:

Dell (NASDAQ:DELL)

20 years

30.1%

25.0%

United Technologies (NYSE:UTX)

35 years

16.1%

13.5%

Intuitive Surgical (NASDAQ:ISRG)

5 years

57.4%

34.2%

Microsoft (NASDAQ:MSFT)

20 years

24.1%

19.3%

DuPont (NYSE:DD)

35 years

8.0%

5.6%

PotashCorp (NYSE:POT)

10 years

28.6%

18.7%

Chevron (NYSE:CVX)

35 years

12.8%

10.3%

Source: Yahoo! Finance. Assumes 55% estate tax and $10,000 original investment.

It also means, though, that any steps you take to avoid paying those 55% estate tax rates mean that your family could end up with a return of 122% more -- over double what they'd have on a taxable estate. It's also important to note that in 2010, there is no estate tax at all, so if your loved ones pass away next year, you'll truly be in the money.

How to save
Fortunately, even with the potential of a huge rise in estate tax rates just around the corner, there's plenty you can do to get your estate planning in order. Our Foolish retirement expert Robert Brokamp recently highlighted some important steps to take in his special report to his Rule Your Retirement subscribers, "How to Rule Your Estate Plan." They include:

  • The three documents you have to have.
  • Should you have a trust?
  • Smart IRA tips to save taxes for generations to come.
  • How to leave instructions for your loved ones to tell them everything they need to know after you're gone.

Not only will you find information you can use to take action now, but you'll see it in easy-to-understand language that won't send you scrambling for a legal dictionary. And if you're not a subscriber to Rule Your Retirement, getting access is as easy as signing up for a 30-day free trial -- just click here.

Thinking about estate planning is never pleasant, but you can't afford to put it off forever. With just a little planning now, you can rest assured that everything will be taken care of when the time comes -- and that the IRS won't get any more of your hard-earned money than is absolutely necessary.

For more on retiring rich, read about:

Start investing today -- just $7 per trade with Scottrade. Or find the broker that's right for you.

Fool contributor Dan Caplinger is one of the only people on the planet who finds estate planning fascinating. He doesn't own shares of the companies mentioned in this article. Intuitive Surgical is a Motley Fool Rule Breakers pick. Dell and Microsoft are Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy takes no effort at all.