njbel16;896496]I know nothing about her financial means, but the property is income generating for her and she lives in another town about 30 miles away. I hope she's just trying to scare us with her letter and wouldnt actually spend the money to sue, but I also sense she might she crazy enough to do anything it takes to get her way. I'm not sure if and how she would be willing to compromise granted she has threatened to sue us based on a casual conversation we had with her husband while chatting in the yard.
people threaten a lot. A lot of those people do nothing more than threaten. Since she has to sue anyway to quiet title if she really wants title to the land she is going to have to spend money. You do not have to defend her claim if it comes down to it. What I would do is start with removing the fence and see what she does in response. If she fails to act, start hacking and whacking bushes. If she does nothing you know it was a bluff so you simply put the fence as close to the line as you can this time. If she files suit, you can still decide to not defend if you don't think it is worth it but I would at least speak with a lawyer before deciding to not defend against her suit.

you never answered my question about whether there is a required set off for your fence in your area.

What is involved in defending a quiet title suit?
it is more of disproving her proof, if she has any and to win she has to have proof of her claim. You do not have to prove she has not adversely possessed the property. She has to prove she has and then, if she presents proof, you need to argue it does not meet the requirements for whatever reason.