I usually reply with "ask your parents", but sometimes I just redirect their attention to the topic of discussion (usually a science or math topic).
I've been asked if these are real:
-Ghosts (I answer "I don't know")
-Mermaids (I answer "No". It seems every kid believes in mermaids now, thanks to pseudo-documentaries)
-Santa (I answer "Ask your parents")
-The North Pole (I answer "Of course!", but then I show them what it looks like)
-Aliens (I answer "Nobody knows")
-Fairies (I answer "No")
-Unicorns (I answer "No")
-The Illuminati (I answer "What?" (what are kids watching on the internet?))