my bro and sil have three kids and all know the truth (including the five year old) - they handled it by telling them, when they asked, the story of Saint Nicholas, and that Santa is a way of keeping his spirit alive. they explained that parents give the Santa presents as a way of keeping the magic alive for their children. this is probably what we will do when DD is old enough to ask - in the mean time, my bro's kids have been asked to respect our decision to make Santa magical for DD - and if they don't, there will be hell to pay from a grumpy aunty BG!