How to dissociate an iOS device from iTunes / iBooks purchase account

You can log out of an account by tapping on the id in Settings > iTunes & App Store

Also turn 'off' (assuming that it's 'on') Settings > iCloud > Find My iPhone, and log out of your account from iCloud : Settings > iCloud > Delete Account

If the phone is associated to your account then you might be able to remove it via your computer's iTunes : iTunes Store: Associating a device or computer to your Apple ID (or you can do it directly on the phone logging out of the account by tapping on your id in Settings > iTunes & App Store, tapping on 'View Apple id' on the popup and logging in, and there might, if the phone is associated to your account, be a 'remove this device' button). If the phone has been associated to your account for less than 90 days then you won't be able to remove it.

Also remove the phone from your support profile if it's registered to it : https://supportprofile.apple.com/

And, if you are on a contract, you've contacted your phone carrier to cancel it ?

If the phone itself is no longer active as a phone then you could probably leave it in, though personally I'd remove it (but as you know who you are giving it to and not selling it to a stranger you should be okay, unless he/she then sells it on).