We brought up death a lot earlier, so don't really know how DS would have coped first dealing with it at 4.5 - but I agree with you, take their lead. Explain that a grave is for remembering people who you love who are no longer here, and see how it goes. Only explain afterlife stuff if you feel confident you know what you believe, as children can ask some pretty clever questions.

Personally, I feel very uncomfortable with the whole "dead people watching you from heaven all the time" concept of death. Really creepy. Dead people are NOT still with me either. I'm getting freaked out just thinking about that! But to others, it brings comfort and many who say things like that do find comfort in it.