Discussing transfer rumors that don't involve players leaving Tottenham Hotspur or coming to Tottenham Hotspur feels a little odd, but this is an odd situation, because the futures of Kaka and Luka Modric are inherently linked. Madrid need to clear at least part of his wages and his roster spot before they buy Modric, even if they haven't met Daniel Levy's asking price yet.
Gazetta Dello Sport is currently reporting that Milan have offered to pay half of Kaka's wages on a loan deal, while MARCA are reporting that Milan have made a €13m Euro bid. Kaka's agent confirmed that he's talked to Milan's directors about a potential transfer.
It's worth noting that MARCA and Gazetta Dello Sport are both tabloids, so the credibility of these reports is to be taken with a grain of salt, but GDS is considerably more reliable than MARCA. We have no way of knowing if this is actually close, but there's no way MARCA completely fabricated Kaka's agent saying that he has spoken with Milan's directors. At the very least, there are talks about the transfer.
If Kaka leaves Madrid, I suspect that Daniel Levy and Florentino Perez will be able to come to some sort of compromise for Modric. Expect something like £32m, potentially escalating to £35m when it's all said and done. And in case it's not entirely clear, this is me making an educated guess.