Taking a lump sum as you pointed out does reduce the payout, then take the tax away from what's left we are talking what? $600,000 give or take. Each of her children probably had to pay tax on the value of the houses as well and perhaps she covered that.
I assume she went modest but in reasonable neighborhoods with the 3 houses but even so that would have left her with very little for herself and a nice piece of equity for her children.
In all it seems that she isn't the greedy sort and given her age I don't think it too awful if she spent the rest, which after all the other stuff wouldn't be a huge amount, enjoying herself. She set her children up, they can make their own luck.
I say good luck to her and she should enjoy life to the full with the new money, in the way she wants.
But you are right, she is a lucky b****
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