I think I'd set it up as an intriguing mystery. Like, I would create the illusion that Santa existed, dress up as Santa and distribute presents, label the presents accordingly, conspicuously produce milk and cookies and place them out for my alter ego to consume, etc. without making my kids aware of who or what Santa is supposed to be, and let them try to figure this out on their own. They'll probably be very confused, but it will be a more interesting experience I think.