Coach the fact that you are asking for advice about this situation tells me you indeed have a heart and you want to make a decision that you feel right about. Of course you want to send the right message to your players in your program and all those that aspire to play in it one day. You want them to know that loyalty to the program and putting in your time is very important. And you don't want them to think that you will cut a kid that will be loyal to the program and keep a kid that is going to transfer the next season. All of these are valid reasons to feel like the best thing to do is remove this player from consideration from your program and give that opportunity to a kid who will be a part of your program the next 4 years.
IMO if you are not going to allow this young man to be a part of your program because he is going to transfer next year then just tell him that. There is no need to put him through a tryout that is pointless.
My point is just because a player will not be in your program the next season for whatever reason does not stop you from helping that player be the best player he can be. It does not stop you from working with him , coaching him , teaching him , mentoring him and making a positive impact on his life and his baseball career. If this young man is talented enough to help his team win this year then you owe it to him and his team mates to allow him to do just that. You rise above the feelings that are only natural in a situation like this. "Scr_w it if he is going to transfer I'm not going to waste my time on him."
The fact is you don't have to cut anyone that you believe deserves to be in your program if you keep him. You show your other players in your program that you are bigger than this situation and you care about every player even if they don't intend to be in your program the next season.
I have helped many players from opposing teams over the years. They don't play for me. I am not their coach. But they are a baseball player and I am a baseball coach. And that is all that really matters. You help them anyway you can and you rise above these petty politics. Coach this is just my opinion and regardless of what you decide to do I wish you well.