If an allay would die while holding a totem of undying, it instead returns to full health and the totem is destroyed, as with any mob holding a totem of undying.

According to the Wiki, the Allay should actually die and the Totem will break. (Sad I had to kill a cute Allay for this report ) I was randomly trying this feature out and noticed that it won't take any damage, I'm pretty sure this isn't intentional. Neither does it take damage if holding an item in general, so the fact that the Totem breaks is pointless if it doesn't take any damage. Please correct me if I'm wrong!