In PEOPLE's latest cover story, Kristen Bell and Dax Shepard open up about their marriage, parenting and more

Honesty is the best policy in Kristen Bell and Dax Shepard‘s household — even if it makes parenting a little awkward sometimes.

“We don’t do any white lying, for better or worse. If they want the truth, they get the truth,” Shepard, 44, tells PEOPLE exclusively in its latest cover story about raising his daughters Delta, 4, and Lincoln, 6 this month, with Bell.

“They know how babies are made, they know that Santa Claus is us, they know that a giant rabbit doesn’t break into the house and leave them chocolate in April every year,” adds The Good Place star, who recently launched Hello Bello, a plant-based baby-product line, with her husband.

Acknowledging that some parents may find the lack of Santa in their household “very triggering,” Shepard explains that it was Lincoln who first brought up that Father Christmas is a farce.

Credit: Jeff Lipsky

“Here’s the thing: Our oldest daughter was not buying it,” he explains. “We were fine with the one lie, like ‘Yeah, he’s Santa. He comes from here.’ Then it was like, ‘Well, how’s he do this?’ We’re like, ‘Okay, so his sleigh is magic … ‘ All of a sudden you’re 36 lies deep.”

“I’m seeing the best part of her brain at work, which is calling bulls— on things that can’t happen,” he continues. “I’m just squashing it with these new and more inventive lies and then finally I was just like, ‘You know what? You’re right. You smell a skunk and there’s one here.’ ”

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Kristen Bell and her daughters
| Credit: Dax Shepard/Instagram
Dax Shepard and Kristen Bell
| Credit: Jeff Lipsky

While Santa doesn’t exist in their house (though the couple say their younger daughter “still believes” in him despite what they’ve told her), the entertainers teach their kids to keep such revelations to themselves.

“We definitely threaten a lot: ‘You cannot, cannot, cannot under any circumstance tell another kid what we told you! You now have a secret and it is your job, and you won’t get other secrets if you don’t keep this one,’ ” says Bell, 38, of how they guide their daughters. “There are beautiful ways to explain it to them [that] keeps the magic alive.”

Admitting their firstborn was a breeze (“She was a very misleading first child. She potty-trained herself!” says Shepard), the spouses say their younger daughter has had a much trickier personality.

“The first time we had the sex conversation, she said, ‘Where do babies come from?’ And we said, ‘Well, Daddy has a penis and Mommy has a vagina,’ ” Bell recalls of their conversation with Delta. “We got two sentences in and she went, ‘I’m going outside.’ And just didn’t care.”

Dax Shepard and Kristen Bell on the cover of PEOPLE
| Credit: Jeff Lipsky

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And though they’re one of the most beloved power couples in Hollywood, the stars say their daughters have no interest in their careers. “I had all these fears about that, and what has quickly occurred to us is that they could not care less,” says Shepard. “They’re unimpressed and they just assume everyone’s parents do that too.”

When Bell comes home with top-secret tidbits about Frozen, “They’re just like, ‘Yeah, okay,’ ” says the actress, who voices Anna in the hit Disney movie. “What’s so clear is that it is in your DNA to reject your parents. They hate when I sing at home! I can sometimes get away with a lullaby.”

Jokes Shepard, “Nobody’s allowed to sing in the house but them, and they have the worst voices of the four of us!”

For much more on Dax Shepard and Kristen Bell’s marriage, parenting philosophies and new baby-product line, pick up the latest issue of PEOPLE, on newsstands Friday.