Bale almost left Madrid last summer, but saw a move to China blocked by the club and was frozen out by coach Zinedine Zidane in the second half of last season.
“For almost 12 years we are playing together and it’s a difficult situation for him and for the club," Modric told The Times.
“Gareth needs to know what he wants to do. He is a grown man and needs to decide what is best for him."
The Welsh winger has two years remaining on his contract at Real and his agent, Jonathan Barnett, has said that he could see out his career in Spain.
However, the 31-year-old is unlikely to feature much if he does stay and claimed in a recent interview that he wanted to play more regularly.
“Does he feel happy here or does he want to try something else?" Modric said. "But for me, Gareth is still a great player and still has a lot to offer in football.
"It just depends on him, if he has enough hunger or desire to keep going. I think he has but whether his situation finishes here or continues, he can still be an important player.”