I think that madrid tried to persuade Modric to stay one more season considering his experience and his contributions to the success of the Madrid project but he decided to leave what I see is that he wanted a new challenge as he may have seen everything madrid going for an adventure is one thing that is one and at his age getting an adventure may be a good thing for him
I think Modric's time at Real Madrid was over a few months ago. He's also quite old now and was most likely looking for new challenges. Therefore he accepted the Rossoneri adventure and tried to make a club like Milan great again.
I don't know how much space coach Allegri will give him, but I hope he's an important cornerstone for this team.