Assuming the deposit account is an ITF account/Totten trust, I think what you are asking is a legal question whether the CU's right to setoff supersedes the multiple party account provisions at 20 PaCS 6301. I doubt there is much case law on the subject, so it will probably come down to the language in the account agreements and the MPAA. If it comes down to a negotiation with the CU, you should take the position that the MPAA says in section 6304(b) that "At the death of the trustee or the survivor of two or more trustees, any sum remaining on deposit belongs to the person or persons named as beneficiaries..." and therefore, because he is deceased, the funds belong to the niece, not his estate.
That is of course if you get stuck in a negotiation. Your niece might get luck and the deposit/retail functions may just release the funds upon verification of her identity, especially if the CC account is not delinquent.