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In the movie Coco, a person in the land of the dead will fade away completely when no one from the land of the living remembers him anymore, and that is how Héctor's friend Chicharrón faded away, because there was not one person left in the land of the living who remembered him.

Later, Miguel tells Héctor, when they are in the pit, that he will go the living World and remember him and that is how he won't fade away, but Héctor clears up that is not how it works while Miguel notes that Coco won't be able to see Héctor when she dies.

Miguel returns home, helps Coco remember his Papa, and she does, she then gives him Héctor's photo as well, and they put it up for next years festival and we find out that Coco died.

Now, no-one is left in the living world who remembers Héctor, Coco died and is not part of the living world, however, we see that Héctor has still not faded away.

Am I missing something from the movie or is this really a loophole in the plot?

According to Héctor, a person's presence in the spirit world requires that the person's stories have to be handed down from living person to living person.

HÉCTOR: No, it doesn't work like that, chamaco. Our memories... they have to be passed down by those who knew us in life -- in the stories they tell about us. But there's no one left alive to pass down Cheech's stories...

At the end of the film Grandma Coco shares a story with her family about Papa Héctor, guaranteeing his continued existence.

MAMÁ COCO: I kept... his letters... poems he wrote me... and... Papá was a musician. When I was a little girl, he and Mamá would sing such beautiful songs...

[The family gathers close to listen.]

_{^{Coco - Original Script}}