I've tried transferring swords to other heroes or children, and that seemed to work.  I couldn't get patchwork armor to transfer.  Discussed in this thread.

I can also transfer items by moving the recipient to an adjacent tile then dropping the item on their on-screen icon.  The transferred item doesn't automatically disappear from the donor's item list, I have to 'refresh' the screen (open a new list, switch to another char, etc.) to get the donor's list to update.

Regarding passing items to chars in different tiles -- distance isn't accounted for.  I can pass items from across the game world, just need to zoom out enough so that both donor/donee are on the same screen.  Items do pass, and equipping passed item changes the donee's stats (defense in this case, as I passed the armor) so the exchange is real.