I know when I got a HI vanity plate and decided to stop paying extra for it, I went to DMV and requested a standard plate. I was not required to turn in the old plates, and they are still hanging up in my workshop.
If you pay for a vanity plate and no longer use it, you should not have to surrender it. It's no longer assigned to your vehicle, so there should be no problems allowing him to keep it.
The vanity plate can be displayed in a windshield, rear window, or wherever else he wants as long as the assigned tags are properly displayed on the bumpers. This is a 1st amendment issue, IMO.