Hello Peter
Thanks for the question.
The ATO has a useful source of information on the matters you raise, being SMSFR 2010/2:
https://www.ato.gov.au/law/view/document?LocID=%22SFR%2FSMSFR20102%2FNAT%2FATO%22&PiT=99991231235958
In brief, in relation to the fund member who has lost her mental capacity, there should be a Enduring Power of Attorney in place, that you should request a copy of.
The wife should resign as a director of the corporate trustee.
The husband is already a director of the corporate trustee, given he is also a member of the fund,
Suspect that husband would sign the financials twice, once in his own capacity as director of the corporate trustee, and then in his capacity as holder of the enduring power of attorney for his wife, also as a director of the corporate trustee.
Would be happy to hear the thoughts of other auditors who have experience with these scenarios.
Best regards
The Auditors Institute