The Bible and the Talmud do not contain any reference to this prohibition. Indeed, just the opposite, the Lubavitcher Rebbe notes that from verses in Genesis it is evident that Terach (father of Abraham) named his son Nachor during the lifetime of his father Nachor.(See Genesis 11:24-26; Sha'arai Halacha U’Minhag,Yoreh Deah, Volume III, p.298)
In addition, the Talmud records a case of a mother concerned about the circumcision of her third son whose two older son’s died as a result of circumcision. Rav Natan gave sage advice that was followed and the child lived and was named “Natan HaBavli”. (Shabbat 134a) The overt indication appears to be that the name given to the child after the Rav was an act of honor to the Rav and certainly not a sinful act.
The Talmud, however, does not grant total discretion to parents to name children any name they so select. The one limitation was a rabbinic ruling prohibiting to name children with names of sinners or evildoers (R’sha’im).(Yoma 38b)This rule has yielded two basic interpretations A simple understanding is that this is a practical means of expunging the names of Jewish sinners from usage. The implication is that there is a general ban against mentioning the names of the wicked and the practical vehicle to curtail such usage was to simply not name children after them. Rabainu Chan’nanel notes that the prohibition against using the names of the wicked means that “any person so named will not be successful”.This implies a form of a curse. Any child named with the name of an evildoer will simply not be successful in life. What parent would wish to jeopardize the success of a child by disregarding the rabbinical ban? There is no question as to whether parents will refuse to name children the names of sinners once they are aware of the projected doom for anyone so named.The uniqueness of Rabbainu Cha’anel’s position is that he introduced elements of mysticism and fear into the ordinary function of naming a child.
In Ashkenazic Europe the custom developed to refrain from naming children with the names of living persons. The following rationales are presented.(Some with sources, some without.).
Common custom is to name children after parents or grandparents who are no longer alive. To name a child after a living person gives the impression that one wishes they were dead, Chas V’Shalom.- (B’rit Avot 8:20 cited in the name of Noheig Katzon Yosef)
When a child, together with his/her father or grandfather have the same name, the Angel of Death may, by mistake, kill the youngest rather than the father or grandparent.
According to Jewish law it is not deemed proper respect to call one’s parent by his/her first name.(Yoreh Deah 240:2) Giving a child the name of the living parent or grandparent would generate confusion and a belittlement of respect.(Chelkat Yaakov, Yoreh Deah 136,Shmirat HaGuf V’haNefesh, Vol. II, 154:9)
To forestall such errors, Ashkenazim simply did not name children after a living person. Thus, concern for proper respect for parents, mysticism, coupled with fear of the “evil eye”, serve as the basis for the custom. There never was an official rabbinic law to outlaw naming a child after a living person. It is merely a custom .that has prevailed comparable to a rabbinical ban.(It is merely an extension of the mystic position of Rabainu Chan’anel.)
Many years ago a family requested that I perform a wedding during the Nine Days commemorating the destruction of the holy Bet HaMikdash. I mentioned that according to jewish law one was not to be married during this period of time. To this they responded that they were not too religious and were not perturbed about violating the law. When I mentioned that it was deemed “Bad Luck” to get married at that time, they immediately changed the date for the wedding. In other words even Jews who are not observant on a regular basis will not be involved with any matter shadowed by the spectre of “Bad Luck”. So too with the Ashkenazic ban against naming a child after living persons. No one wishes to galvanize “Bad Luck” upon their children.(Kashe sakanta m’isurah)
The Sefardim simply never adopted any such customs. They follow the original tradition wherein it was totally permitted to name children after living persons. Indeed, they deem the act as a form of granting honor to parents or grandparents.