I wanna say Fear became a new thing well after Will back in RM2.
Though Will is more for contests with mastering Items, use it for times where the PC is countermanding an Items purpose as an override to fleeing.
I would still have the PC make regular Fear checks just for the possibility of a heart attack - but after Failing:
Have a Will vs Will contest with the sword getting its Undead/Holy bonus.
If it wins, it cancels the Fear effect insofar as a Fleeing/Paralyzed result, but keep the negative mods or halve them(the PC shouldn't become a God able to totally defy their innate Achilles' heel...they don't have to be Munchkins and play Elves, heh.)