You could also make the definition of 'living creature' be 'not a death element creature'. I'm trying to go from memory, but Death has Mummy, Skeleton, and Bone Dragon that are clearly undead, and Flesh Spider and Retrovirus that are not undead. (have I missed any? I play death the least of any element so I'm not sure)
The other thing you could do is change the upgraded card to affect only opponent's living creatures, if you wanted. I'd probably increase the cost by one quanta or make the upgraded one only a 4/2 instead of a 5/2 if you did that. It's not necessary to do so, but it's another thing to think about; up to you if that's an improvement or not.
Is there any way for another creature to get Schrodinger's Cat's ability? If this could somehow gain that ability, it would be sick :p However, I can't ever remember seeing a mutant with the dead/alive ability so I don't think it's possible.
Also, would this ability work on immortal creatures? Based on the way Elements behaves with other cards, it would be consistent to say that it wouldn't work on them. (I know when I first started I had a few 'wtf' moments when things like Firestorm didn't hurt Phase Dragon, for instance)