Young children can have a concept of death, even if they don't fully understand its permanence at such a young age. We do a service to their intellectual and spiritual growth by not hiding this part of life from them. Keep in mind that even if we don't talk to kids, death is all around. Between hearing about celebrity deaths and reading the stories in the Bible, which include death, it is something that can't be avoided. At the same time, we must learn how to be honest about death and dying in a way that doesn't create falsities or situations as described in the last paragraph quoted above.
I find a good resource to be When Families Grieve, a video put out by Sesame Street.
As children encounter illness, loss and grief -- whether their own or someone close to them -- they seek to understand those events and to make sense of their experiences. This inevitably is a spiritual process as they turn to their beliefs, faith narratives, rituals and practices. They may not yet have the cognitive capacity to reach conclusions, yet they yearn for an explanation of events that are sometimes difficult, if not impossible, for even adults to answer. Their questions may show innocence and naiveté. For example, when her maternal grandmother died, my 3-year-old granddaughter took comfort from the belief that even though her grandmother was no longer physically present on earth, she would watch over her from heaven. However, this led to a very practical concern: Would her grandmother be able to see her on the toilet -- a potent issue as she was becoming toilet trained? We reassured her that her Grandma would not look at her in these very private moments.
Children as young as 2 or 3 years old are trying to make sense of their world, and inevitably they are encountering their spirituality. Illness, grief and loss are often part of their worlds as well, so their spiritual development helps shape how they grapple with issues for which they want a concrete explanation. Often it is these questions -- Why did grandma have to die? Why is there illness? What happens to you after you die? -- that spur a child's interest in spiritual questions and explanations...
Everyone has some set of spiritual beliefs even if they do not accept theism, or the practice of incorporating a belief in a higher power or God. It is important to share those spiritual beliefs with your child as well. For example, a parent might not believe in heaven, reincarnation or any form of afterlife, but that parent may still take comfort in the memories that he or she has of a person or find solace in a sense of pride based in the legacy of a deceased individual. Such memories and legacies can be remembered and celebrated. It is also important to take care in presenting romantic explanations rooted in spirituality to a child, because children often interpret such stories literally. I once counseled a 7-year old boy who was acting out after the death of his friend -- a death due to a car accident that this boy witnessed. He had been told that his friend was good and that God wanted him to be angel in heaven. This surviving child wanted to make it clear to the Deity that he would not be good material for any prospective angel. The romantic stories we may weave may do more harm than good. It is best to simply and honestly share your own spirituality with a questioning child.