The 10th anniversary of the terrorist attacks have generated lots of news coverage, bringing the topic of death up and front and center around here. Even more personal, my deteriorating health condition has recently prompted my kids to ask if I'm dying. (For the record, my condition is serious, but I'm not planning on going anywhere for a while).
At any rate, professionals seem to agree that when death for a loved one is imminent, or your kids are just at that age where they start to ask about dying, the best thing to do is talk. Keep it age appropriate, use clear terms (no "going to sleep" or "God called them to Heaven"), and reassure them about the practical stuff. Let them ask questions, and admit when you don't have the answers.
The following websites have some great information to help you with your conversations.