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The Dead Three was the collective name given to Bane, Bhaal & Myrkul. Originally, they were powerful mortal adventurers who sought the path to godhood, known at first as the Dark Three. They found it in the form of Jergal, who acquiesced to their demands as he was tiring of his life as god of the dead. He gave up his portfolios to the three of them, apotheosizing them in the process. Bane ruled tyranny and strife, Bhaal became lord of murder & Myrkul, the dead.
They earned their name of the Dead Three when they all perished during the Time of Troubles. Bane and Torm killed each other and Myrkul was killed by the mortal mage Midnight while Bhaal was slain by Cyric, using the sword Godsbane, an avatar of Mask.
In the mists of the past, the Dead Three were three power-hungry mortals: Bane the Tyrant, Myrkul the Necromancer, and Bhaal the Assassin. The three forged a pact to achieve godhood or die trying. With their eyes on the ultimate prize of the portfolio of Jergal, Lord of the End of Everything, the three endured epic quests and obstacles until they finally faced the mighty god upon his throne. To their surprise, Jergal willingly stepped aside, claiming that he was happy to grant his powers to the three mortals. He then asked which among them would rule, at which point a fierce argument broke out among the three. However, Jergal resolved their dispute with a game of chance, and the succession was eventually decided thus: Bane took the portfolio of hatred, strife, and tyranny, Myrkul that of the dead, and Bhaal that of death and murder. Jergal remained as a demigod, aide to the new god of the dead, and thus the Dead Three became the most fearsome force of evil in the Forgotten Realms.
However, the Dead Three's reign came to an end with the Time of Troubles. During this period, each of the three gods was slain: Myrkul was destroyed by Mystra, goddess of magic, Bane by Torm, demigod of paladins, and Bhaal to the sword Godsbane (the god Mask in disguise), wielded by a young mortal named Cyric. At the conclusion of the Time of Troubles, when the Lord Ao permitted the gods to return to their posts, Cyric and Bane's son Iyachtu Xvim were granted all of the collective portfolio of the Dead Three between them.
However, the Dead Three have proven difficult to destroy. Bane has returned from his grave, having sired Iyachtu Xvim as a sentient cocoon from which he recently emerged, restored to near-full power. Myrkul is known to be inhabiting the evil artifact, the Crown of Horns, whereabouts unknown, but certainly plotting his return to godhood. Bhaal, who foresaw his own demise, fathered scores of children during the Time of Troubles as part of a scheme to return to power, the details of which are central to the plot of the Baldur's Gate series.
Further information regarding Myrkul can be found in Neverwinter Nights 2: Mask of the Betrayer.
*Plot Details Follow!*
It appears that dead gods still have consciousness so long as mortals worship or fear them. In Myrkul's case he still has a following which sustains his consciousness. In addition the player character learns that he is harboring the soul of Myrkul's High Priest, Akachi The Betrayer, who led a revolt against Myrkul for sentencing his love to the wall of the faithless for not believing in a god. Akachi's punishment was to be himself placed in the wall of the faithless until the wall had consumed the memories and identity of his soul but not the entire soul. Then his soul was removed in placed into a mortal body in Rasheman where all it knew was the insatiable hunger to feed on other souls, primarily the spirits that are abundant in Rasheman but also, eventually, the person that it was inhabiting as well. Meanwhile, while the player character's body is inhabited by Akachi's soul, the player character's soul went to the spot in the wall of the faithless where Akachi's soul should be. This all leads up to the player character meeting the dead god Myrkul and possibly using his devour soul ability on the dead god, thereby ending his consciousness and finally killing the god.