Water damage behind house siding

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Vertical joints at trim areas should be sealed behind, not on top., and not with latex caulk, which is what appears to be used in your example. Simply installing a pc of metal flashing behind the trim & siding joint will keep any water from infiltrating, for a second measure, a bead of good sealant in place and installing the board over it will also assure no water issues. The side trim, depending on the thickness, can also be rabbeted to allow the siding to recess behind the trim, which also helps keep the trim in place and uniform. It will also eliminate any end nailing which is where cracks usually begin from nailing at the edge of the board.

Not many folks these days want to take the time to do it right, especially if getting paid by the sf.
I'm not saying what you plan to do will not work. I am merely saying that there are other options just as effective without all the additional steps, materials, labor & costs, to achieve the same results.
The only thing I have issue with in your photo, is it appears the gap is not covered by the screen. Maybe they have the gap line and arrow pointing to the wrong area, as the gap will be between the lath, not behind it.

As far as stain, realize the more translucent the stain, the deeper it penetrates the wood, and less likely it is that it will peel. Solid stains do not penetrate as well, and will peel as it fails, much faster than semi, and flakes/ peels, rather than wears. At least with semi, it will merely wear, and can be recoated every few years or as needed with minimal prep work. Solid will need scraping and feathering.

Good luck with your project, and enjoy. I love working on my place.
 
The side trim, depending on the thickness, can also be rabbeted to allow the siding to recess behind the trim, which also helps keep the trim in place and uniform. It will also eliminate any end nailing which is where cracks usually begin from nailing at the edge of the board.
Thanks Hog.
I really like the idea of the rabbet.
Silicone caulk was used on our original siding to seal to the vertical trim. Though it stuck amazingly well to one board or the other it couldn't handle the shrinkage and broke loose from either the siding or the trip, letting water in.
 
My vinyl siding finds under a 1/2 overhang on the corners. I guess it is possible in a blowing rain that water could get behind that and wet the OSB. There is plenty of air movement under that corner and it is pretty much open at the bottom. If it got wet, it would get dry. Maybe over 200 years that would be an issue, but I would have much greater concerns at that time...like being dead.