Thanks for the advice so far. I suspect I'm making this more complicated than it needs to be. When I say, DH and I are managing her finances, I mean that literally. MIL has not financial sense at all. We are literally managing it for her and she has no concept of risk tolerance or how to figure out her own tolerance. So it's really about DH's and my risk tolerance for her portfolio. And our risk tolerance for her money is pretty low. The 60/40 split is probably pretty spot on, or possibly even too aggressive.
We won't be doing an annuity. Her health is bad, the chances of coming out ahead on an annuity are low. Plus, if we do need access to the principle for medical expenses, an annuity really limits our options. I guess another goal we have that I didn't state was that we'd like to preserve some of the capital for future generations. This windfall came to MIL courtesy of her ILs and I'd really like to pay it forward to our kids or grand kids.
I think I need to do some more research on how different types of investment income are taxed in Canada. I think dividends are taxed differently than capital gains, but I'm pretty fuzzy on the details.