1. Because you are not married, and because you are his legal guardian, you must exercise the utmost of fiduciary obligation to him in the handling of his money.
2. You fiduciary obligation would preclude you from using his money to buy a home that you would place your name on as well. You may not legally use any of his assets to benefit yourself directly.
3. And yes, if you use any of his money to buy a piece of real property, his name must be on the title to that property. And it would almost certainly be improper for you to add your name to the property as well. You don't have the right to enter into a business transaction with him that may not be in his absolute best interest.
4. Technically, while he is living, if the two of you were to "legitimately" own a property together, Medicaid would not force the sale of the property but would lien it and wait to collect until after his death. However, they would look at the totality of the situation---see that you used his money to buy a property for you to live in, and perhaps take the position that his money had been misused and then seek to avoid payment of the nursing home bills.
You ask about a penalty for cashing in the annuity and I am not sure what you mean---who would assert a penalty?
The simple fact is that as you are not married, and that anything that you use his money for that in any way benefits you will raise a red flag and he could lose the ability to have Medicaid pay bills---at least for a period of time. Perhaps just as importantly, it could be determined by a state prosecutor that you misappropriated funds belonging to your ward and that could lead to criminal charges for Elder Financial Abuse or even possibly Embezzlement.
You may reply back to me again if you have additional questions, and I will continue to assist you.
I wish you and yours the best in 2015,