rgard
Adventurer
I would do this but, since I cringe at telling a player that a PC cannot try to do something if they wish to do so, I would also ask after the new PC is all equipped and transporting the dead former PC back to his final resting place if the paladin is stealing the magic item from the corpse. I would then deal with the consequences in-game.
I agree that the 'in game' approach is best. The healer is the only one left standing? That PC would decide what to do with the bodies and their stuff.
If the healer can find an in game/in character way of justifying keeping the gear then let him. If he can't, but does it anyway, there should be in-game consequences.