So sorry to hear about your Grandad.
How to tell a LO is really tough. When my step-Dad died, my nephews were 2 1/2 & 4, and like you, knew their grandad even though they didn't see him often. My brother chose not to tell the boys that anything was wrong, as they didn't see him that unwell. When they did see him, you could tell from their behaviour that they understood something was up - all of a sudden they didn't try the usual rough & tumble play.
When my Step-Dad died, they told the boys he'd gone to live with the angels (they're not religious at all), living in Newcastle, the boys immediately took this as him living with the angel of the north. Whenever they drive past, they always have a look for their grandad.
If I'm honest I really don't think there is a right or wrong way to deal with this. Maybe just decide what you will tell your LO, and be ready to answer any, or no, questions
