When believers die, their souls are immediately made perfect in holiness and enter into the presence of Christ in glory, while their bodies remain united to Christ as they rest in the grave awaiting the final resurrection. This intermediate state is one of conscious, joyful fellowship with the Lord.
The Reformed faith, as articulated in the 1689 LBCF Ch.31 §1, maintains that the souls of the righteous do not sleep or perish at death. Rather, having an immortal subsistence, they are immediately received into paradise where they are with Christ. This is not a state of unconsciousness, but of active, blessed communion. As the Apostle Paul wrote, this departure is 'far better' because it results in being 'with Christ' (Philippians 1:21-23). Our hope is not anchored in our own works, but in the finished work of our Savior, who has already passed through death to prepare a place for us (John 14:3).
While the soul is with Christ, the body is not forgotten. The Westminster Larger Catechism Q.86 teaches that even in death, our bodies continue to be united to Christ and rest in their graves as in their beds. This rest is temporary and holy, awaiting the day when Christ shall descend from heaven and the dead in Christ shall rise first (1 Thessalonians 4:16). Because Jesus died and rose again, we do not sorrow as those who have no hope; our bodies shall be raised in power, transformed to be like His glorious body (1 Thessalonians 4:14).