He's not undead. Undead in d&d has a fairly loose but set range of meaning, it isn't an indeterminate state. It is, within that context, determinate.

He's a former deity, jergal. This means that he has a different status, and if you look at the options you get when first talking to him as a cleric, it says something about him being steeped in divine energy.

He's more of a demigod

I found out that he's an avatar of Jergal the other day. So he's correct, he's not alive or undead, he's a divine entity.

He's not saying he's between those two things, he's saying he exists entirely outside of that paradigm.

Which he does, because Withers is >!an avatar of Jergal, the former god of death!<