Hi Joan and welcome to the club.
My mum developed AD after my dad died, and the first signs were her saying he had come back from the dead. At first she knew it was her imagination, or accepted that, but later she became adamant that he was there. She even made him meals, and got cross that he had gone out without eating them, and even later called the GP to ask him to visit because her husband was ill (boy, that made them take notice of what I had been saying for the past year!). Later she asked me if I had seen her mam and dad recently - they died many years ago.
I gently told her that they were dead, and that seems to have worked for her for the most part. But when she was in hospital, she made friends with a (highly intelligent) lady who had just learned that her father had died, and had been buried without her knowing. He had in fact died about 30 years earlier. She was quite distraught about it, but the nursing staff told her lies to get over the issue. They told her that a neighbour had seen to the funeral arrangements, and arranged a nice wake for him, and all went well, and she was satisfied with that.
I think you have to just see what suits your mum, and it seems that with this illness you can change your story and it is still acceptable to the person. So if saying "Mum, she died 20 years ago" doesn't work, you can try "I think she is fine at the moment" or "I'm not sure, I'll give her a call and find out", or as other people have suggested, just divert the conversation to "I don't know, but what did you have for lunch today".
I know it goes against the grain to be less than honest, but we have to bear in mind that a person with dementia doesn't absorb the truth in a normal way.
Good luck with your mum
Margaret