At the beginning of each upkeep, if you lost life last turn, put a +1/+1 counter on Paladin of Atonement.
When Paladin of Atonement dies, you gain life equal to its toughness.
1/19/2018 Paladin of Atonement’s first ability cares only whether you lost life last turn, even if Paladin of Atonement wasn’t on the battlefield when that happened. It doesn’t care how much you lost, whether you also gained life, or even whether you gained more life than you lost.
1/19/2018 To determine how much life you gain for the last ability, use Paladin of Atonement’s toughness as it last existed on the battlefield. If its toughness was less than 0, you won’t gain life. (You also won’t lose life.).