tl;dr - just make a character with that name on another server.
I'm going to give the quickest and easiest argument against this: Maidy Maidy@Gungnir . Simply put, Maidy is unfortunately no longer with us. This news was conveyed to us from a blog post by Yoshi-P himself. Maidy, as you may know, was famous for a blog detailing their experience with introducing their father to FFXIV. This blog series ended up turning into a TV Drama and a Netflix Movie adaptation. With a feature similar to what you have proposed, some malicious actor is guaranteed to take Maidy's name and start effectively impersonating them. Probably within minutes of the feature going live due to how well known Maidy is. And there are other high profile users who have passed away. I have friends who have unique, valuable names that are similarly no longer with us. They cannot suddenly become active. And I do not wish to see somebody walking around with their name, let alone opening the floodgates of harassment from those names from really malicious users. Or fraud (which would definitely become a significant problem as well).
The actual specifications here (level 1-5, inactive, etc.) aren't enough here. How do you really define inactive? Many of those alts could be roleplaying alts that don't NEED to be level 100. Maybe they're alts to send out FC submarines. If a user passes away, how can a loved one request that their name and account be frozen? How do you prevent people from abusing the account freeze when they want to take a significant break from the game? Would it be fair to only limit username-freezing to "famous" users rather than friends? There are way more things to think through with this, and I don't think it's worth the effort. Square won't get any additional users with a feature like this when you can typically just make a character with the same name on a different server.