diff --git a/src/hash_builder/mod.rs b/src/hash_builder/mod.rs
index 8ddd860..a461272 100644
--- a/src/hash_builder/mod.rs
+++ b/src/hash_builder/mod.rs
@@ -200,8 +200,18 @@ impl HashBuilder {
             let preceding_len = self.groups.len().saturating_sub(1);
 
             let common_prefix_len = succeeding.common_prefix_length(current.as_slice());
-            let len = cmp::max(preceding_len, common_prefix_len);
-            assert!(len < current.len(), "len {} current.len {}", len, current.len());
+
+            // guard against accessing beyond the current key length
+            if common_prefix_len >= current.len() {
+                return;
+            }
+
+            // calculate len ensuring we don't exceed current key boundaries
+            let len = if current.is_empty() {
+                0
+            } else {
+                cmp::min(cmp::max(preceding_len, common_prefix_len), current.len() - 1)
+            };
 
             trace!(
                 target: "trie::hash_builder",
@@ -231,10 +241,38 @@ impl HashBuilder {
                 self.resize_masks(current.len());
             }
 
-            let mut len_from = len;
-            if !succeeding.is_empty() || preceding_exists {
-                len_from += 1;
+            // handle intermediate nodes if needed, when current path is more
+            // than 1 nibble longer than common prefix
+            let needs_update = len + 1 < current.len() - 1;
+            if needs_update {
+                for intermediate_len in (len + 1)..current.len() {
+                    let intermediate_path = current.slice(..intermediate_len);
+
+                    if self
+                        .updated_branch_nodes
+                        .as_ref()
+                        .map_or(true, |nodes| !nodes.contains_key(&intermediate_path))
+                    {
+                        let next_nibble = current[intermediate_len];
+                        let state_mask = TrieMask::from_nibble(next_nibble);
+                        let tree_mask =
+                            if self.stored_in_database { state_mask } else { TrieMask::default() };
+
+                        let node = BranchNodeCompact::new(
+                            state_mask,
+                            tree_mask,
+                            TrieMask::default(),
+                            Vec::new(),
+                            None,
+                        );
+
+                        if let Some(ref mut nodes) = self.updated_branch_nodes {
+                            nodes.insert(intermediate_path, node);
+                        }
+                    }
+                }
             }
+            let len_from = if !succeeding.is_empty() || preceding_exists { len + 1 } else { len };
             trace!(target: "trie::hash_builder", "skipping {len_from} nibbles");
 
             // The key without the common prefix
@@ -372,7 +410,18 @@ impl HashBuilder {
             self.hash_masks[parent_index] |= TrieMask::from_nibble(current[parent_index]);
         }
 
-        let store_in_db_trie = !self.tree_masks[len].is_empty() || !self.hash_masks[len].is_empty();
+        // first set the state mask - must contain all child positions
+        let my_state_mask = self.groups[len];
+
+        // then determine tree mask - must be subset of state mask
+        let my_tree_mask = if self.stored_in_database {
+            // only set tree mask bits for positions that exist in state mask
+            my_state_mask & self.tree_masks[len]
+        } else {
+            TrieMask::default()
+        };
+
+        let store_in_db_trie = !my_state_mask.is_empty() || self.stored_in_database;
         if store_in_db_trie {
             if len > 0 {
                 let parent_index = len - 1;
@@ -382,8 +431,8 @@ impl HashBuilder {
             if self.updated_branch_nodes.is_some() {
                 let common_prefix = current.slice(..len);
                 let node = BranchNodeCompact::new(
-                    self.groups[len],
-                    self.tree_masks[len],
+                    my_state_mask,
+                    my_tree_mask,
                     self.hash_masks[len],
                     children,
                     (len == 0).then(|| self.current_root()),
@@ -611,4 +660,276 @@ mod tests {
         assert_eq!(hb.root(), expected);
         assert_eq!(hb2.root(), expected);
     }
+
+    #[test]
+    fn test_intermediate_nodes_creation() {
+        let mut hb = HashBuilder::default().with_updates(true);
+
+        let deep_key = Nibbles::from_nibbles_unchecked(vec![0, 1, 2, 3]);
+
+        let value = alloy_rlp::encode(U256::from(42)).to_vec();
+        hb.add_leaf(deep_key.clone(), &value);
+
+        // calculate root to ensure all nodes are created
+        let _root = hb.root();
+
+        let (_, updates) = hb.split();
+
+        let expected_paths = [
+            Nibbles::from_nibbles_unchecked(vec![0]),
+            Nibbles::from_nibbles_unchecked(vec![0, 1]),
+            Nibbles::from_nibbles_unchecked(vec![0, 1, 2]),
+        ];
+
+        for path in &expected_paths {
+            assert!(
+                updates.contains_key(path),
+                "Missing node at path: {:?}\nAvailable paths: {:?}",
+                path,
+                updates.keys().collect::<Vec<_>>()
+            );
+        }
+
+        let first_node = updates.get(&expected_paths[0]).unwrap();
+        let expected_state_mask = 0b0000_0000_0000_0010;
+        assert_eq!(
+            first_node.state_mask.get(),
+            expected_state_mask,
+            "First level node state mask mismatch. Expected: {:016b}, Got: {:016b}",
+            expected_state_mask,
+            first_node.state_mask.get()
+        );
+        assert!(first_node.tree_mask.is_subset_of(first_node.state_mask));
+
+        let second_node = updates.get(&expected_paths[1]).unwrap();
+        let expected_state_mask = 0b0000_0000_0000_0100;
+        assert_eq!(
+            second_node.state_mask.get(),
+            expected_state_mask,
+            "Second level node state mask mismatch. Expected: {:016b}, Got: {:016b}",
+            expected_state_mask,
+            second_node.state_mask.get()
+        );
+        assert!(second_node.tree_mask.is_subset_of(second_node.state_mask));
+    }
+
+    #[test]
+    fn test_tree_mask_is_subset_of_state_mask() {
+        let mut hb = HashBuilder::default().with_updates(true);
+
+        let key1 = Nibbles::from_nibbles_unchecked(vec![1, 2, 3]);
+        let key2 = Nibbles::from_nibbles_unchecked(vec![1, 2, 4]);
+
+        let value = alloy_rlp::encode(U256::from(42)).to_vec();
+        hb.add_leaf(key1, &value);
+        hb.add_leaf(key2, &value);
+
+        // calculate root to ensure all nodes are created
+        let _root = hb.root();
+
+        let (_, updates) = hb.split();
+
+        for (_, node) in updates.iter() {
+            assert!(
+                node.tree_mask.is_subset_of(node.state_mask),
+                "Tree mask {:016b} is not a subset of state mask {:016b}",
+                node.tree_mask.get(),
+                node.state_mask.get()
+            );
+        }
+    }
+
+    #[test]
+    fn test_stored_in_database_flag_impact() {
+        let mut hb = HashBuilder::default().with_updates(true);
+        let key1 = Nibbles::from_nibbles_unchecked(vec![0, 1]);
+        let value = B256::with_last_byte(1);
+
+        hb.stored_in_database = true;
+        hb.add_branch(key1.clone(), value, true);
+
+        // calculate root to ensure all nodes are created
+        let _root = hb.root();
+        let (_, updates1) = hb.split();
+
+        if let Some(node) = updates1.get(&key1) {
+            assert!(
+                node.tree_mask.get() > 0,
+                "Tree mask should be non-zero for stored node at {:?}",
+                key1
+            );
+            assert!(
+                node.tree_mask.is_subset_of(node.state_mask),
+                "Tree mask should be subset of state mask for path: {:?}\n\
+             state_mask: {:016b}\n\
+             tree_mask:  {:016b}",
+                key1,
+                node.state_mask.get(),
+                node.tree_mask.get()
+            );
+        }
+
+        let mut hb = HashBuilder::default().with_updates(true);
+        hb.stored_in_database = false;
+        hb.add_branch(key1.clone(), value, false);
+
+        // calculate root to ensure all nodes are created
+        let _root = hb.root();
+        let (_, updates2) = hb.split();
+
+        if let Some(node) = updates2.get(&key1) {
+            assert_eq!(
+                node.tree_mask.get(),
+                0,
+                "Tree mask should be zero for non-stored node at {:?}",
+                key1
+            );
+            assert!(
+                node.tree_mask.is_subset_of(node.state_mask),
+                "Tree mask should be subset of state mask for path: {:?}\n\
+             state_mask: {:016b}\n\
+             tree_mask:  {:016b}",
+                key1,
+                node.state_mask.get(),
+                node.tree_mask.get()
+            );
+        }
+    }
+
+    #[test]
+    fn test_complex_trie_structure() {
+        let mut hb = HashBuilder::default().with_updates(true);
+
+        let data = BTreeMap::from([
+            (
+                hex!("1234000000000000000000000000000000000000000000000000000000000000").to_vec(),
+                Vec::new(),
+            ),
+            (
+                hex!("1235000000000000000000000000000000000000000000000000000000000000").to_vec(),
+                Vec::new(),
+            ),
+            (
+                hex!("1245000000000000000000000000000000000000000000000000000000000000").to_vec(),
+                Vec::new(),
+            ),
+            (
+                hex!("1345000000000000000000000000000000000000000000000000000000000000").to_vec(),
+                Vec::new(),
+            ),
+        ]);
+
+        // Add each value to the trie
+        for (key, val) in &data {
+            let nibbles = Nibbles::unpack(key);
+            hb.add_leaf(nibbles, val.as_slice());
+        }
+
+        let root = hb.root();
+        let (_, updates) = hb.split();
+
+        let expected_paths = [
+            (vec![0x1], 0b0000_0000_0000_1100),
+            (vec![0x1, 0x2], 0b0000_0000_0001_1000),
+            (vec![0x1, 0x3], 0b0000_0000_0001_0000),
+            (vec![0x1, 0x2, 0x3], 0b0000_0000_0011_0000),
+            (vec![0x1, 0x2, 0x4], 0b0000_0000_0010_0000),
+            (vec![0x1, 0x3, 0x4], 0b0000_0000_0010_0000),
+        ];
+
+        for (path_nibbles, expected_mask) in expected_paths {
+            let path = Nibbles::from_nibbles_unchecked(path_nibbles);
+            let node = updates
+                .get(&path)
+                .unwrap_or_else(|| panic!("Missing expected node at path: {:?}", path));
+            assert_eq!(
+                node.state_mask.get(),
+                expected_mask,
+                "Wrong state mask for path {:?}. Expected {:016b}, got {:016b}",
+                path,
+                expected_mask,
+                node.state_mask.get()
+            );
+            assert!(node.tree_mask.is_subset_of(node.state_mask));
+        }
+
+        for (key, node) in updates.iter() {
+            assert!(
+                node.tree_mask.is_subset_of(node.state_mask),
+                "Tree mask not subset of state mask for key {:?}",
+                key
+            );
+
+            if key.len() < 3 {
+                assert!(
+                    node.state_mask.get() > 0,
+                    "State mask should not be empty for non-leaf node at {:?}",
+                    key
+                );
+            }
+        }
+
+        assert_eq!(root, triehash_trie_root(data));
+    }
+
+    fn verify_tree_mask_invariant(nodes: &HashMap<Nibbles, BranchNodeCompact>) -> bool {
+        for (path, branch_node) in nodes {
+            let child_paths = (0..16)
+                .filter(|&pos| (branch_node.tree_mask.get() & (1 << pos)) != 0)
+                .map(|pos| {
+                    let mut child_path = path.clone();
+                    child_path.push(pos as u8);
+                    child_path
+                })
+                .collect::<Vec<_>>();
+
+            for child_path in child_paths {
+                if !nodes.contains_key(&child_path) {
+                    return false;
+                }
+            }
+        }
+        true
+    }
+
+    #[test]
+    fn test_regression_reth_issue_12129() {
+        let mut hb = HashBuilder::default().with_updates(true);
+
+        let path1 = Nibbles::from_nibbles_unchecked(hex!("0b"));
+        let path2 = Nibbles::from_nibbles_unchecked(hex!("0b0605"));
+        let path3 = Nibbles::from_nibbles_unchecked(hex!("0b060502"));
+
+        hb.add_leaf(path1.clone(), &[1]);
+        hb.add_leaf(path2.clone(), &[2]);
+        hb.add_leaf(path3.clone(), &[3]);
+
+        // calculate root to ensure all nodes are created
+        let _root = hb.root();
+        let (_, updates) = hb.split();
+
+        let intermediate_paths = [
+            Nibbles::from_nibbles_unchecked(hex!("0b")),
+            Nibbles::from_nibbles_unchecked(hex!("0b06")),
+            Nibbles::from_nibbles_unchecked(hex!("0b0605")),
+        ];
+
+        for path in intermediate_paths.iter() {
+            assert!(updates.contains_key(path), "Missing intermediate node at path: {:?}", path);
+        }
+
+        for (path, node) in updates.iter() {
+            assert!(
+                node.tree_mask.is_subset_of(node.state_mask),
+                "Tree mask not subset of state mask for path: {:?}\n\
+             state_mask: {:016b}\n\
+             tree_mask:  {:016b}",
+                path,
+                node.state_mask.get(),
+                node.tree_mask.get()
+            );
+        }
+
+        assert!(verify_tree_mask_invariant(&updates));
+    }
 }