Although he has been largely limited to substitute appearances this season, Modric will leave Real as its most decorated player after 590 appearances, 43 goals and 95 assists.
“Modric will forever remain in the hearts of all Madridistas as a unique and exemplary footballer who has always embodied the values of Real Madrid,” added club president Florentino Perez in a statement.
“His football has captured the imagination of Madridismo and fans all over the world. His legacy will live on forever.”
Modric captained Real to two trophies in his final season to take his haul to 28 titles, overtaking Nacho Fernandez as the club’s most successful player.
His tally includes the six Champions Leagues, six Fifa Club World Cups, five European Super Cups, four La Liga titles, two Copa del Rey triumphs and five Spanish Super Cups during his 13 seasons at Real.
After leading Real to a 2018 Champions League success over Liverpool and then Croatia to the World Cup final in the same year, Modric became the first player since 2007, other than Cristiano Ronaldo and Lionel Messi, to win the Ballon d’Or.
He is also the oldest player to represent Los Blancos in La Liga and their oldest goalscorer, having scored in a 2-1 win over Valencia at the age of 39 years and 116 days, overtaking Ferenc Puskas’ mark.
Modric is also currently the third longest-serving member of a Spanish top-flight side, behind Oscar de Marcos of Athletic Club and Atletico Madrid midfielder Koke.
Last month, the Croatia legend became an “investor and co-owner” with a minority stake in Championship side Swansea City.