Set a stroke to knockout a fill behind it with live text in Illustrator

Question

I'd like to be able to set the stroke of some live text to knockout a fill that is offset so it appears as a shadow with negative space between the top fill and the "shadow" fill. I can't seem to find a way to do this in the appearance pallet. I would like the effect to to look like this image:

The white negative space between the yellow and the red needs to be transparent to show a background such as a photo, but it also needs to stay as live text for easy editing. Is this possible?

Answer 1

This is possible to do. You just need to know a very rarely used feature*.

1. First turn on transparency grid, so that you can observe the effect. Choose: View → Show Transparency Grid or hit Shift + Ctrl + D.
2. Next make a primitive shape like a box to design the effect on (due to text grouping it is easier to design on something else first).
   1. In the appearance window Select the entire object (usually Path topmost item)
      • In the transparency window click on knockout group 2 times so its a check mark (If you can not see options in the panel menu enable extra options).
   2. Duplicate the fill color
   3. Offset the shadow using transform effect.
   4. Add a white stroke
      • Magic step, turn opacity of stroke to 0 and it will cut trough the shape because you are using group knockouts.

Image 1: You should have something like this.

Now drag this shape to the styles panel and apply to your text.

Image 2: Final result after some changes in stroke thickness and transform amount.

* In fact it is so rare that whenever I even suggest this to people I get blank stares followed by why would I need this?