They'll get over it. When did we decide that something children handled just fine for thousands of years would traumatize them now.
I remember being five years old and being at my great-great grandmother's funeral (105 years old. Remarkable woman. Last of the true, old time Appalachians. Would have reminded you of "Granny" from the Beverly Hillbillies. Chopped her own fire wood at ninety-something years old). Not just the funeral, but actually sitting next to her casket in my grandmother's parlor for the wake. I remember them shutting the casket. Then, the long walk up the mountain to the cemetary (even at five years old, I new that couldn't have been easy, to carry her all the way up there).
My mother and grandmother sat us kids down and explained everything to us very clearly and very lovingly.
I remember it all very vividly and it didn't traumatize me (or, as far as I know, any of my cousins) at all. To the contrary, even at five years old, I remember thinking that it was a very peaceful and beautiful way to end life.
It was very important to my family that even I, as a child, get to say goodbye to her.
Believe me, it's much easier to explain a funeral and why granny's body is in a box than it is to keep the child away and explain why granny was here yesterday and won't be back tomorrow.