[Balanor]

No, I do not see a reason that they can/should transcend death. The only things that should get carried with you to the Fugue Plan are those that are needed OOCly - such as the Thay - Realm of the Red Wizards item.

If special items are lost, regardless of whether they are faction items or some other specially customized items, when a PC dies and they want them back then PCs (and DMs as well) should see it as an RP opportunity rather than just an inconvenience from their regular activities. For example - you go to your faction leader/contact and explain what happened, which results in some RP and maybe a special side quest to get a new copy of the lost faction item or any of a dozen other methods to (re)prove yourself to the faction. XP for roleplay, maybe some gold or something else thrown in the mix, and potentially other benefits could then arise from the 'bad' situation of a character's death.

I would hope/expect that no DMs are simply creating a missing faction item (or any missing desired item) fora PC if it was lost it due to the PC's death without at least some IC roleplay preceding it...