Authorship with Past and Nearly Absent Supervisor
First, should you include her as a co-author? Customs in this are journal- and field-dependent, so you should check with others in your field (you didn't tell us what it was) and also with the authorship policy of the journal you intend to submit. You may also want to check with the department where you did your Masters what their policy is on authorship and affiliation for students' papers. At the very least, if you're going to have someone be cross at you, know in advance where you stand!

I'll sum up my answer to another question on the site by stating that graduate students oftentimes dismiss too easily an advisor's role in the research. Selecting a problem/project for you to work on, even guiding you in the selection of a problem can be considered a big intellectual contribution to your research. Conception/design of research is an integral part of the research, and usually explicitly calls for authorship in resulting papers.

It's okay to be proud of your work, and to think your contribution in it was crucial, but be sure not to be biased against your supervisor when evaluating her contribution. One person who may help you do that is your current advisor!



Now, that being said, let's suppose you have made the decision not to have her as coauthor. How do you manage that? The guiding principle should be: be upfront and clearly state where you stand.


Including her name in the acknowledgements of the paper, specifically stating her contribution. (“SG thanks Dr. Jane Doe for initially pointing him to this challenging problem.”)
When the paper is published, be sure to send her a preprint, along with a nice email.
If you are worried about her reviewing the paper, list her in the list of potential reviewers to exclude (if the journal submission has space for that). But… having her in the acknowledgments may already be enough for the editor not to pick her.