Close-Knit (Karera ga Honki de Amu Toki wa) is a film about a young girl, Tomo, who's mother has abandoned her on more than one occasion. She goes to stay with her uncle Makio and his girlfriend, Rinko, who is a transwoman.
While the film is from Tomo's point of view, the majority of the story is her interactions with Rinko. I personally feel it was handled respectfully, even if I think the knitting theme was a bit unusual. The LGBT characters in this film are not comic relief, they are portrayed as real people with real world issues.
brief Q&A:
How can I watch this legally?
As of now, the only source would be to import the bluray, which has english subtitles.
Why is a man in a transwoman role?
I think Toma Ikuta did a great job in this film, but for more information on this, please read this interview with the film's director, Naoko Ogigami.
Official site (Japanese)