I'm assuming from your post that you aren't comfortable with heaven???? With my children it has been a very reassuring thing to them. They know that though someone dies that there is hope and love in heaven. I don't believe either of my girls ages 5 and 3 are uncomfortable with death. We are sad when someone passes, but happy that we will meet again.
Hope in heaven is a wonderful message for children. It is very reassuring and comforting to them to learn about such a wonderful place.
If that is not part of your belief structure, then I'm not sure how to discuss it without making it scarey. I would not recommend that you take them to the funeral either. Seeing someone in a box, cold and still is very disturbing. Then the services at the cemetary just might be too much. Knowing they close the lid on you and then put dirt on top would be very scarey I think. (With heaven my kids know the person has a soul and it has left the body to be in heaven....their great grandfather passed back in May and they were fine.)
I attended funerals of elderly aunts when I was a child, but was taught from birth about Christ and heaven. It never bothered me to see someone dead. When my cousin died (he was 7) I was 13. I cried because I missed him, but it wasn't devasting or traumatizing because I've always known I will see him again. It is a long story but I do believe he had a premonition that he was going to die because he was very distraught the night we left for Arizona. He was only 6 and he was use to us visiting and then leaving, but on that occasion he was very upset. He died before we ever spoke again.
Don't know why I went into that because it doesn't really apply...but he knew what death was because his grandmother had died a few months before. He told us he was going to see her for his birthday. He turned 7 in the hospital while still in a coma. Not long after he died. So he was right.
Now that being said, I hope that you will be able to find a way to discuss this very painful, but necessary topic with your kids so that they won't be afraid or disturbed. It is a fact of life and a sad time, but should not be devastating by any means. Good luck!