Corrected entry: Grandpa is wrapped in the hospital sheet from the time the family sneaks him out of the hospital until the funeral home picks him up out of the VW. He would have also been dressed in a hospital gown and wearing an ID bracelet which would have contradicted Richard's story that he died while they were driving.
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Correction: We don't know for certain that he is still wearing a hospital gown and bracelet when the funeral home picks him up. Someone in the family could have thought as far as to remove them and dress him in regular clothes. Or the people at the funeral home failed to notice until they had arrived at their offices. Either way, it is not shown on screen, but entirely possible.
Twotall