I found that I needed to be really clear about my own beliefs about death and then I just simplified it.
I told my kids that their grandpa's body stopped working. I told them that we all live on the earth for awhile and when our soul is done living here, our body stops working and our soul leaves to go back to the spirit world.
I have told them that it is possible to talk to spirits/souls, some people can see them, some can hear them. Grandpa always watches us, he sees everything we do and he still loves us as much as we love him.
The kids often say that they wish he was still here or hadn't died and I say I feel that way too.
Sometimes my kids ask technical questions about how his body stopped, where he died, where his body is, etc. Sometimes they ask about other things like souls and spirits.
If you know what you believe it makes it easier to simplify it and explain it. The questions keep coming and get more tricky as they get older, so if you are clear about it now, it will help.