Question:
I went to a circumcision a few days ago and the baby was given a double Jewish name—one name after a person who has died and the second after a person who is still living. I was under the impression that we do not name a baby after the living?
Answer:
The practice of not naming a child after a live individual is exclusive to Ashkenazi Jews, who also won't name a child after a deceased individual if one of the child's live parents, grandparents, or great-grandparents carry the same name. Sephardic Jews do name their children after live relatives—and it is considered a great honor for the live relative after whom the child is named. So perhaps the circumcision you attended was of a Sephardic child?
Under certain circumstances, it is also possible for Ashkenazi parents to give their child a name that is shared by a live parent or grandparent. My research uncovered two such possibilities:
1. If the parent or grandparent has two names, some halachic authorities maintain that it is permissible to name a baby after another individual who had only one of the names. So if the grandmother, for example, was named Rebecca Deborah, it would be permissible to name the child Rebecca or Deborah after a deceased person by that name.
2. Though quite uncommon, a parent or grandparent can choose to allow the child to bear his/her name.
On a similar note, if a child is being named in honor of a righteous individual or Torah leader, the namesake can be alive.1
I obviously cannot know conclusively why your friends named their child as they did. Why not ask them yourself?
Rabbi Eliezer Posner