This is a good choice, because at the moment Modric is still really needed with Madrid losing 2 important players, so Modric's decision to extend his short-term contract is a good thing.
Even though next season Modric's playing portion will definitely not be like this season, I think having him in the squad will definitely increase the confidence of the young players because having him will clearly increase the mentality for the next regeneration.
Apart from that, there are several statements that say that Modric wants to follow in Kroos' footsteps in retiring at Madrid and it is possible that at his current age he can still make that happen next season so with this one season I think for a new contract with Modric's current age then indeed it was a good decision.
With Modric in midfield, Ancelotti can still create several schemes so that next season runs according to expectations.
Real Madrid have planned this, they still want senior players to maintain team stability and Modric still deserves to be in the Real Madrid squad even though he is no longer young, but his quality is still very good.
For minimal playing minutes, I think that's for sure and that's also very normal because at Modric's age, he's not young anymore, of course his physical condition is also very declining.
Regardless of the plan or not, it is not very good to let all senior Madrid players leave because with Nacho and Kroos who will not be at Madri next season indirectly for now only Carvajal, Modric and Vasquez are the only senior players at this time and it will be very bad if senior players leave simultaneously because this can affect the mentality which makes the performance ultimately decrease.
With Modric in the squad, things like this are minimized and of course this is a very good thing for Madrid in the end.
Actually, Modric's performance is still very good and definitely still very useful, it's just that for now with the condition of his age and preparation for the future, his portion inevitably must be reduced. Ancelotti must rotate and give opportunities to young players in midfield because surely with the arrival of Mbappe now, Jude's position will return to his original position as when he was at Dortmund as an attacking midfielder, so it needs further adaptation regarding this matter.