Prepare yourself because I'm going to use a teddy bear for this tutorial
... gettin' all kinds of fancy!
I don't have any children available at the moment to do this test for you but hey, everyone loves a snuggly teddy bear.
Move your subject at least 5-8 feet from the tree
This is such an important tip! Pulling your subjects away from their background creates dimension and also helps bring focus onto the person rather than the distractions that may be happening in the background.
Summary: Do not sit someone close to the tree. A background becomes out of focus when it is not on the same focal plane as the subject.
Get closer to your subject
Not only does it help to move the subject away from the background to create separation, it's also equally important for you to not be too far from the subject.
Summary: Get closer. Use a lens such as 35mm to photograph in tight places and allow you to be close to your subject.
Use a low f-stop setting to make bokeh appear buttery and gorgeous
A low f-stop such as 1.4 is incredible for bokeh. Yes, it may be too low if you are photographing children who are running around but go as low as you possibly can without losing the integrity of your image.
An f-stop at 2 is also amazing and can be applied with the rule above about getting close to your subject which will enhance the bokeh and separation between your subject and the background.
I find that the best lens to use for tree photos is a 35mm or 50mm and this is because you can fit into tight places and also these prime lenses allow you to select a lower f-stop setting.
If space is not an issue then I would use an 85mm as this distance creates amazing buttery bokeh, allows you to give more distance to your subject but create an incredible portrait.
Left photo - subject is approximately 1 foot from the Christmas Tree. Notice there is bokeh from the lights but it is very confusing, small and in my opinion it takes away from the subject. I am also photographing approximately 5 feet from the subject.
Right photo - subject is approximately 5 feet from the Christmas tree. Bringing them closer to me (approximately 4 feet) and away from the background created larger bokeh and softer blur. It is better but still I think we could get less distraction from the tree and apply a more softer blur by moving the subject even further from it.
3rd photo - subject is approximately 8 feet from the Christmas Tree. I am approximately 3.5 feet from the subject. This distance seems to create less distraction and more soft bokeh. Also note that the bokeh lights appear closer together and larger. This is my preferred distanced.