Template no override option even though I made a change

Hi all! I have a template which has a script attached to it which allows me to assign an entity variable via the editor. However, I am not able to override the template changes when I have assigned the entity. Even if I create a new entity and have the variable entity assigned before making it a template, the entity disappears in the input field when I make it a template. And then a vicious cycle of not being able to assign it anything. Is this a bug?

Hmm, there might be an issue actually. I will create a report.

Edit:
Created a ticket here:

Edit2:
It looks like it is by design. Please check @yaustar comment in the ticket. Basically, template cannot reference entities outside of it, as those may not exist when template is instantiated.

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