Discussing these matters with children is a tricky matter that most parents will face. My recommendation is that we avoid being dishonest or giving children a false sense that things will eventually go back to "normal" when, in reality, they will not. This will only temporarily provide relief and will ultimately cause more confusion and pain while potentially damaging trust and a child's sense of safety. I believe that the best course of action is to explain that the loved one is sick and that the sickness has caused certain changes in the loved one. Perhaps letting your daughter know that grandma is sick and that part of her condition is that she will lose her ability to remember things including people who she loves. Additionally, dementia patients may have some good days and some bad days, and ultimately, they will always struggle with their memory and the struggle may get worse over time. Most importantly, let your daughter know that it makes perfect sense that she would be sad about this and that it is best to talk about this sadness at times. Avoidance of the feelings and talking about changes in grandma will likely delay and complicate the inevitability of your daughter having to grieve the loss of grandma as she has known her. Counseling for her (perhaps with your involvement) could be extremely helpful in supporting a healthy grieving process.