If there's no family, and given the paladin's background, I'd say redistribution of the dead comrade's possessions - at least those of practical value - is perfectly fair and justified. Things like magic items anyone can use, rations and water, torches, etc., should be used to help his comrades survive...provided that resurrecting or raising the fallen PC is out of the question. There's absolutely nothing in the code to forbid this practice, provided his religious beliefs don't prohibit taking items from the honored dead.
Since the fallen PC is evidently a druid or ranger, any magic items he had that are useless to the rest of the party could be dealt with by the paladin, to the best of his knowledge and honesty, answering a single question.
"What would he do with his items if he were to live for but one more day?"
The paladin, by virtue of his...um...virtue...is uniquely entitled to answer these sorts of questions in the absence of a speak with dead or the chance to return life to him. If the other PC's don't trust the paladin to make a just decision in this situation, the party has much larger problems than what to do with a wand of barkskin.