That gender-switch thing for the Master would be BRILLIANT, but wouldn't the Doctor know to anticipate that?
I don't know. Technically the Master is beyond his 13th regeneration (which supposedly sends time lords insane). But since he was killed in the movie version and seemingly brought back by the time lords to fight in the war with the daleks, that could all be up in the air.
Having given it some thought, I suspect it's the possession route. His "wife" mentions in a throw-away line, that after what Harry Saxon did for her father...
What did he do?
This is by far the smartest incarnation of the Master to date. And he set up plans within plans. Given his overwhelming desire for self preservation (as observed by the Doctor) suggests he had an escape plan worked out as well.
So it could be that he stows a part of him in her ailing father, then if things go wrong, she "kills him" he bumps the rest of him into the ring and she takes the ring to her father who is the new host to the Master.
He also mentions, while taughting the Doctor about his new empire, about a time lord/human race. "Haven't you always dreamed of that?"
Just a theory.