Let him pay.
Knowing nothing of your family circumstances - such as other siblings - this may just be his way of 'spending the children's inheritance' and acknowledging the magnificent gesture you and your husband have made. I would agree that bundling all the utilities, rates insurance etc into the contribution would make life simpler.
Ground rules are impossible to suggest without knowing the family dynamic and to some extent your father's mobility and attitude.
Depends if the annex is fully self contained with its own kitchen, patio etc and whether you expect him to cater for himself. A locked door between residences and invitations to visit might seem cold to some and expected to other families.
As a bloke I would be erecting a shed for him so he doesn't get into my garage or shed without an invitation, and no way is he borrowing my tools!
My father-in-law would spend all day manicuring my garden, washing windows, sweeping paths, cleaning gutters, painting fences then pestering my wife for errands to run or minor DIY tasks. When she ran out of inspiration he would be introducing himself to the neighbours and then asking them.
He is a deaf as a post, won't use hearing aids, won't wear his reading glasses, impatient, stubborn, won't listen to instructions, won't read manuals and was never as good at DIY as he thinks he is. So everything he does do is done quickly and badly.
He would expect all his washing & ironing done, vacuumimg, dusting and tidying, meals with the family, escorted to doctor, dentist, barber, clothes shopping etc. He is of that generation and background and mother-in-law is still around. He does make his own coffee now though and toddles off to Lidl with a shopping list - but doesn't prepare said list.
He would be a nightmare and wouldn't/couldn't notice boundaries.
I would be hiding in the garage.
I actually like him - in small doses and in his own house.