We have mainly gone down the bodies get old and tired and stop working route.
Always emphasising very old, as my kids think I'm old, and I don't want them panicking that I'm going to die soon...
We talk about other things that get worn out, and say it's a bit like that with bodies.
My husband is a christian, so he also talks about the person going to a better place and getting a new body, and we can see them again one day - though I leave those bits to him. I sometimes talk about the person living on in the way we remember them and talk about them etc.
I remember being told NEVER to say the person had fallen asleep and wouldn't wake up, as it can make sleep a terrifying prospect.
I think its not easy, but better to be quite factual with little kids, and answer questions as honestly as is appropriate (obviously leaving out details of suffering if applicable). Too much "cute" - they become stars/ angels I think is not helpful to their understanding of the facts of life.
I am so sorry that you're facing this :( sorry about your Nan 