So why even say he died? Maybe just say he is not working for the company anymore and let the team figure it out for themselves if they are that curious.
If a colleague of mine died, and management described this as "they are no longer with the company", this would create some huge trust issues if I found out. Which in any place I've ever worked, I would find out.
"Passed out" is just a verbal typo for "passed on", an accepted euphemism in English for someone dying. I think that slip is forgivable, clearly not ideal, but human beings make mistakes. I also agree with the parent comment that it isn't management's place to provide details about the death, but IMHO they have a responsibility to say that's what happened.
