That'll do.Had this situation last year - kids were 4 and 2. Found honesty the best policy ; saying that she had died, they weren't going to see her, that she was in pain and niot anymore.
The eldest realised quite early on and got upset. The youngest couldn't quite grasp it. Found a great book called dragonflies and water bugs which talks in an analogy about this, gives a semi faith view if you do, or want your kids to, have some concept of heaven. We read that a few days later and it helped them both. My youngest got confused and keeps asking is she had gone to newhaven! These light hearted comments do help.
I was convinced that was going to be a piss-take, took me by surprise.