If the tracking of a controller is lost (i.e. controller is out of sight of the tracking cams) then there should be alternative behavior as an option.
Standard behavior:
all items are dropped, the hands and arms move to the standard avatar pose and the buttons and thumbsticks are disabled.
Alternative behavior:
hands stay at the last tracked place (relative to the avatar), switch to 3DoF (keep rotational tracking), items are not dropped, buttons and thumbsticks keep enabled.