Thats because you need to heal up to your maximum health.

Once you go living dead, you have 1 hp left. If you get benediction right then, you will heal up to your max hp minus 1.

So, if you don't take damage and recover back that 1 hp, you're dead. Thats why when you stun the mob and proceed to kill it, you will not get damaged but you will be at full health BUT you still need that 1 hp heal back. I take it from your tests that once you go full hp, any overheals will not be considered as gaining that 1 hp back and that includes any healing spells, self-heal or the natural regen.

I think SE should look into overheals as counting towards the max HP heals because that would solve the problems of a lot of Living Dead failures, i.e. Benediction + any kind healing (even when at HP bar is full) should do the trick. Also, I think it would be good if instead of us dying at the end of Living Dead, we could be penalized by having a status effect where we cannot do anything at all for a certain amount of duration. It will make it less risky, up to par with Holmgang at least.