When my bil died the minister warned my sil about explaining it in terms of angels and stars and so on. DC will take whatever you say as the literal truth.
Unfortunately my sil had already told her daughter that Daddy had inexplicably transformed into a star and was living with some people called Angels in the sky.
My niece (now 6) regularly subjects us to questions such as "are there toilets in heaven?" and "if I get a really big ladder, can I reach my daddy?" Her family aren't even remotely religious so I never understood why they explained it to her in these terms, but it was extremely unhelpful and I imagine that even if you ARE religious you'd end up with a whole raft of such questions that are impossible to answer.
The thing that helped her the most was looking at pictures of him, and drawing them together. A book I read recommended making a picture with the child in the centre, surrounded by all the different people who love her, and hanging this on the wall next to their bed. We made a lovely photo album and filled it with pictures of all her (numerous!) grannies, grandads, uncles, aunties etc. The balloon idea sounds lovely, too, but are you going to allow your child to think that their grandad is actually, physically, going to read it? Because that might well be what they think - they might end up expecting a reply! It's a great idea if explained carefully.
There are some lovely books to help kids with bereavement too - Sesame Street published a beautiful one about Big Bird and Mr Hooper that would absolutely break your heart. Not one mention of heaven in it - just an acknowledgement that the dead person has gone away.
I'm so sorry for your family's loss. I don't think there is any simple way of dealing with this.